Maersk warns of uncertainty ahead due to overcapacity, Red Sea risks

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Maersk warns of uncertainty ahead due to overcapacity, Red Sea risks
Photo from Maersk.
  • Maersk warned of an uncertain earnings outlook this year due to an oversupply of container vessels and Yemen’s Houthi rebel attacks in the Red Sea
  • For the whole of 2023, net profit sank more than sevenfold to $3.8 billion
  • The Danish shipping company lowered its 2024 core profit forecast to a range of between $1 billion and $6 billion
  • While volumes were up across most products and strong cost control helped improve results, rates continued to erode, particularly in Ocean

Maersk warned of an uncertain earnings outlook this year due to an oversupply of container vessels and Yemen’s Houthi rebel attacks in the Red Sea.

For the whole of 2023, net profit sank more than sevenfold to $3.8 billion from $29.2 billion in 2022. Revenues amounted to $51 billion, sharply down from 2022’s $81.5 billion.

The company said it has lowered its 2024 core profit forecast to a range of between $1 billion and $6 billion.

While volumes were up across most products and strong cost control helped improve results, rates continued to erode, particularly in Ocean, it said in a statement.

For the last quarter of 2023, the Danish shipping company reported a loss of $456 million, a huge drop from the $4.98 billion profit year-on-year. Sales also slipped 34% to $17.8 billion.

The lower income was the result of “rapid and steep declines in shipped volumes and rates” beginning at the end of the third quarter of 2022.

The $51 billion revenues with earnings before interest and taxes margin of 7.7% was impacted by declining freight rates.

The company announced “solid financial results” for 2023, but its stock price sank more than 13% last Thursday (Feb 8) in the Copenhagen stock exchange following its warning of uncertain 2024 earnings outlook. Its share buyback plan was also aborted.

The company said the difficult but still solid 2023 was the result of freight rates soaring in 2022 due to capacity shortages as a result of high demand that came in the wake of the end of COVID-19 pandemic restrictions.

In its earnings report, Maersk said: “The high demand eventually started to normalize as congestions eased and consumer demand declined leading to an inventory overhang.”

Maersk CEO Vincent Clerc noted: “2023 was a transitional year following the extraordinary market boom caused by the pandemic. We secured solid financial results despite significantly changed circumstances, and we are well positioned to manage the expected headwinds in 2024.”

He added: “The current market remains one of robust volumes, but while the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates, eventually the oversupply in shipping capacity will lead to price pressure and impact our results. The ongoing disruptions and market volatility emphasize the need for supply chain resilience, further confirming that Maersk’s path toward integrated logistics is the right choice for our customers to effectively manage these challenges.”

Maersk’s Ocean business last year “saw strong schedule reliability and continued efforts to bring down costs helped ease headwinds from rapid increase in supply,” the company reported. However, it noted that “challenging market conditions resulted in substantially lower freight rates.”

Its Logistics and Services “continued to win new business but destocking at the beginning of the year followed by lower rates led to a decrease in revenue.”

Terminals also continued “the steady performance and secured another very strong year. Thus, cost control, price increases, and utilization led to return on invested capital of 10.5%, ahead of midterm targets,” the company said.

This guidance is based on expectation that global container volume growth will be in the range of 2.5% to 4.5%.

“High uncertainty remains around the duration and degree of the Red Sea disruption with the duration from one quarter to full year reflected in the guidance range.”

Because of the challenges faced by Maersk along with the rest of the global maritime shipping industry, the oversupply challenges are seen to “materialize fully” this year, said the company.

Maersk chairman Robert Maersk Uggla along with CEO Clerc said in the earnings report that 2023 ended “with multiple distressing attacks on cargo ships in the Red Sea and the Gulf of Aden.”

They noted that two of the company’s ships had been targeted.

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