Forecast significantly increased
Shipping company Maersk feels increasing demand
May 2, 2024, 4:53 p.m
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The Danish logistics company Maersk is raising prices because of the attacks in the Red Sea. This and increasing demand ensure that the industry giant has achieved its annual targets after just three months. Nevertheless, the shipping division continues to make a loss. And new problems are emerging.
The Danish shipping company Maersk benefited at the start of the year from higher demand and increased freight rates in the wake of the tense security situation in the Red Sea. The group made an operating profit (Ebitda) of almost $1.6 billion from January to the end of March. This means that more was generated in the first quarter than the one billion dollars that the group had previously forecast as a minimum for the year as a whole. Maersk now believes it has at least $4 billion. However, the shipping company earned that much in the foothills of the Corona boom in the first quarter of 2023 alone.
Meanwhile, analysts pointed to problems in the shipping division. The shares temporarily fell by up to four percent and later recovered. Maersk is the second largest freight shipping company in the world after the privately owned and secretive MSC. The Danish company, for which more than 730 container ships sail the seas, is considered an indicator of world trade.
The first quarter of the year was completely dominated by the security problems in the Red Sea. The numbers therefore shed light on how the diversion around the risk area affects the industry. After attacks by Houthi militias in the Red Sea, the ships avoid the route through the Suez Canal, the shortest sea route between Southeast Asia and Europe. The approximately two-week longer detour via the southern tip of Africa leads to higher expenses, but also brings higher freight rates for the shipping companies. Nevertheless, sales fell by 13 percent to $12.4 billion and were therefore slightly below expectations. The bottom line was 177 million dollars – only a fraction of the 2.3 billion in the same period last year.
Overcapacity is becoming an industry problem
Meanwhile, demand is developing better than expected and conditions in the Red Sea remain difficult, explained Maersk boss Vincent Clerc. This not only supported business in the first quarter, but also improved the outlook. Ultimately, Maersk expects the situation in the Red Sea to remain unchanged for most of 2024. According to Clerc, this will only postpone the feared problems caused by overcapacity: He continues to expect that the high number of new freighters will put pressure on the shipping market.
During Corona times, shipping companies benefited greatly from supply chains that had become fragile and high freight rates that were influenced by supply and demand. With their coffers bulging, the shipping companies went on a shopping spree at the shipyards – also because they have to modernize their fleet to reduce CO2 emissions. After freight rates had recently fallen again and profits had plummeted, there were concerns that overcapacity could further derail business. Maersk assumes that container transport worldwide will increase by 2.5 to 4.5 percent in 2024. The analysis house Bernstein expects fleets to expand by 15 percent in 2024 and 2025 – and therefore more than demand will support.
Bernstein analyst Alexander Irving was also critical of the latest Maersk figures. He focused on earnings before interest and taxes (EBIT) of $177 million, which significantly missed market expectations of $223 million. According to Irving, a loss was again incurred in the maritime shipping division despite the higher freight rates.
Germany’s industry leader Hapag-Lloyd will present figures for the first quarter of the year on May 15th. Maersk is not only a competitor to the traditional Hamburg group, but also its partner in the future. From February 2025, the Europeans want to achieve greater reliability in their timetables with a common fleet pool. For the new cooperation, Hapag-Lloyd, number five in the world, is leaving an alliance with three Asian shipping companies. Maersk has already withdrawn from an alliance with MSC. Maersk sees itself – unlike Hapag-Lloyd, which focuses on liner services – as a comprehensive logistics company. The Danes are also considered to be interested in the railway subsidiary Schenker.