Image: marinelink
A.P. Moller-Maersk, a global shipping giant, reported a substantial slump in third-quarter profits and revenues on Friday, sending shockwaves through the maritime industry. The company, responsible for handling about one-sixth of the world’s container trade, announced plans to slash at least 10,000 jobs, citing overcapacity, escalating costs, and a downturn in prices.
CEO Vincent Clerc acknowledged the challenges, stating, “Our industry is facing a new normal with subdued demand, prices back in line with historical levels, and inflationary pressure on our cost base.” This acknowledgment comes against the backdrop of a more severe decline in demand than anticipated by analysts and investors.
Since the summer, the industry has grappled with overcapacity across various regions, resulting in price drops and a conspicuous absence of a rebound in ship recycling or idling. As a consequence, Maersk’s shares, headquartered in Copenhagen, nosedived by 11.1% by 0904 GMT, reaching their lowest point in three years. Also reported by BBN here earlier today.
Jyske Bank analyst Morten Holm Enggaard attributed the share price plummet to Maersk’s revelation that it might reconsider its share buy-back program into 2024. Enggaard expressed concerns, stating, “The only way we can read it is that we have to look into something very bad in 2024, and probably worse than what we had expected.”
Maersk forecasts a potential 2% decrease in global container volumes within its ocean business, the company’s largest segment. This projection is primarily attributed to weakened consumer demand and destocking by firms post the initial surge in demand following the global disruption caused by the coronavirus pandemic. This aligns with the warning issued by Maersk in August about a steeper decline in global demand for shipping containers by sea in the current year.
In an effort to weather the storm, Maersk is actively reducing its workforce from 110,000 in January to below 100,000. This strategic move is expected to yield savings of $600 million next year compared to the current fiscal year. The cost-cutting measures aim to counterbalance the impact of the precipitous drop in underlying earnings before interest, tax, depreciation, and amortization (EBITDA), which contracted from $10.9 billion in the third quarter of the previous year to $1.9 billion this year, narrowly exceeding analysts’ expectations of $1.81 billion in a Refinitiv poll.
While Maersk maintains its full-year guidance for revenue and operating profit, the company anticipates both metrics to land at the lower end of the range. The challenging economic landscape, marked by overcapacity, rising costs, and weak prices, presents a formidable set of hurdles for Maersk and underscores the unpredictable nature of the maritime industry in the current global climate.
Source: Maersk [report] & Reuters
