AP Møller-Maersk has forecast a plunge in profits this year and a probable contraction in global trade as the pandemic-driven boom in container shipping comes to an abrupt end.
The world’s second-largest container shipping group said on Wednesday that underlying operating profits this year would be $2bn-$5bn, down from the record $31bn it made last year.
It made $5.1bn in the fourth quarter of last year alone, even as freight rates, which had rocketed as the pandemic disrupted global supply chains, normalised.
“We are seeing this correction happen. It creates a few new challenges. First and foremost though, it’s a return to normal . . . What we see more than [a change in] GDP is an inventory correction,” Vincent Clerc, Maersk’s new chief executive, told the Financial Times.
Clerc said that customers, who include most of the world’s largest retailers, had over-ordered during the congestion of recent years.
“When this congestion goes away, you get more goods, your warehouses are full, your inventory is high,” he added.
The first non-Dane to head Maersk and only in the role since January 1, Clerc faces a tricky challenge: presenting record results for 2022 and a steep drop in profits and demand this year.
Maersk said it expected global container demand to be between minus 2.5 per cent and plus 0.5 per cent this year. Shares in Maersk fell 4 per cent in early trading on Wednesday.
“It’s a message about balance. There is no painting the world like everything is going to be fine and easy. Delivering those results is extraordinary . . . We are heading now into a different world, and there is no time for the team to lean back and say: thank God, we are going back to normal,” Clerc said.
Revenues in 2022 increased by a third to $82bn while operating profit rose by 57 per cent to $31bn.
The Danish group largely refrained from ordering new ships during the boom years unlike many rivals, especially Mediterranean Shipping Company, the secretive Swiss company run by a former Maersk executive which last year overtook it as the world’s biggest container shipping line by volume.
Some analysts believe the industry is in danger of returning to the pattern of boom and bust that dominated before the past decade of consolidation.
“Capital discipline across the industry remains evasive. Capacity investments is ahead of what we foresee for demand growth,” Clerc added.
This year is likely to be mixed for Maersk’s different businesses. Its land-based logistics and port terminals units should see improving profits in the second half, Clerc said. But its main container shipping business would see strong profits in the first quarter because of the number of long-term contracts employed, which would then fall throughout the year as the drop in freight rates feeds through. It would be a “pretty sharp adjustment”, he added.
Clerc, who has been at Maersk for a quarter of a century, most recently as head of container shipping and logistics, said he would stick to Maersk’s strategy of bulking up its logistics business and focus on solving customers’ supply chain problems.
Although Maersk is forecasting a sharp drop in profitability compared with last year, operating profits of $2bn-$5bn would be better than what it delivered in 2017-19 as well as possibly 2020’s $4.2bn.
Source: Economy - ft.com
