A.P. Moller-Maersk A/S, a bellwether for the world economy, lowered its estimate for global container trade, saying there are no substantial signs that volumes will recover this year.
Global container trade will probably contract as much as 4% this year, down from Maersk’s previous prediction of as much as 2.5%, the Copenhagen-based company said in a statement on Friday.
“Our case is not for a recession, but it is for a really subdued environment that will continue for the rest of this year,” Chief Executive Officer Vincent Clerc said in an interview with Bloomberg TV’s Dani Burger and Mark Cudmore. The expectation is “to see some recovery in the market in 2024 and getting back to positive growth territory,” he said.
Maersk, along with the rest of the shipping industry, is facing an abrupt readjustment after generating record profits in 2021 and 2022 thanks to a spike in demand for consumer goods during the pandemic, coupled with limited vessel supply. Now, global economic growth is losing pace and companies are working through existing inventories instead of transporting new goods from Asia to Europe and the US — a process known as destocking.
Maersk had expected to see the inventory correction to be winding down already, but said it “appears to be prolonged and is now expected to last through year end,” adding that “there is no sign of a substantial rebound in volumes in the second half of the year.”
The forecast sent its shares as much as 3.8% lower in the Danish capital, the most in two weeks. By 9:52 a.m. the shares had pared most of the drop.
In terms of the global economy, “we’re still quite concerned,” Clerc said. “There’s a lot of moving parts right now, from rate hikes and the risk of recession” as well as “uncertainty also about GDP growth in China and what demand is going to be in China next year.”
Still, the company reported second-quarter earnings that beat estimates and raised the lower end of its own 2023 profit forecast range, saying cost reductions softened the impact from the poor economic environment.
Earnings before interest, tax, depreciation and amortization fell to $2.91 billion in the second quarter. That compares with a median estimate of $2.29 billion in a survey of analysts. Maersk said it now sees 2023 underlying Ebitda of $9.5 billion to $11 billion, up from an earlier projection of $8 billion to $11 billion.
What Bloomberg Intelligence Says:
“Maersk’s solid 2Q beat and improved full-year guidance are overshadowed by expectations of a prolonged inventory correction, recession risks and weaker volume, which may shape the company’s credit story in the coming months. Softer freight rates, which were down 51% in 2Q, coupled with new ship deliveries and lower disposable incomes could lead to deteriorating credit metrics in 2H and 2024.”
— Stephane Kovatchev, BI credit analyst
“Our decisive actions on cost containment together with our contract portfolio cushioned some of the effects of this market normalization,” Clerc said in the statement. “Cost focus will continue to play a central role in dealing with a subdued market outlook that we expect to continue until end year.”
The CEO also said he sees “supply side risks” unfolding over the next 12 to 18 months as new ships enter the market, and that is for “us to continue mitigating.”
Maersk, which transports about one-sixth of the world’s containers, said box volumes fell 6.1% in the quarter while freight rates declined 51% from the same period of 2022.
--With assistance from Douglas Lytle.
(Updates with CEO and analyst comments as well as shares from third paragraph.)
