Maersk Expects Container Shipping Volumes to Fall Up to 25%

Date: Thursday, May 14, 2020
Source: The Wall Street Journal

The boxship operator beat expectations and posted a quarterly profit built partly on cost cuts, higher freight rates

A.P. Moeller-Maersk A/S expects container volumes to fall up to 25% this quarter and plans to cancel dozens of sailings as the Danish shipping giant copes with sliding demand in consumer and industrial markets from the coronavirus pandemic lockdowns.

Maersk, which moves 17% of all containers world-wide, posted better-than-expected first-quarter earnings on Wednesday as cost cuts, lower fuel outlays and higher freight rates helped offset the demand slump.

With the U.S. and European countries stepping carefully toward reopening their economies, Chief Executive Soren Skou said he expects no meaningful recovery until the end of the year, and added that container volumes are expected to fall 20% to 25% in the second quarter from a year ago.

“There is a massive impact on both Asia-to-Europe trades and across the Pacific with the U.S. and Europe into lockdown,” Mr. Skou said. ”Without a doubt it’s going to be the steepest ever drop in demand within a quarter.”

The company suspended its financial outlook in March, and Mr. Skou said business remains uncertain even if the lockdowns end and a coronavirus vaccine is developed and distributed in the coming months.

“It’s one thing to reopen and another whether the consumer will go out shopping,” he said, adding that with millions out of work, economic activity could be anemic for months.

Maersk and other container shipping lines have canceled hundreds of sailings on major trade lanes and idled ships to cut costs and maintain freight rates amid the declining demand.

Maersk said its average container freight rates were up 5.7% in the first quarter from a year ago. The carrier canceled more than 90 sailings in the first quarter and expects another 140 to be dropped in the second quarter.

“The aim is to provide capacity in line with demand. We save costs with the fewer sailings and capacity utilization on the ships that still sail is high,” said Mr. Skou.

 

Maersk scrapped most of its full-year guidance in March amid the Covid-19 impact on supply chains, but said Wednesday that it sees 2020 volume growth in its shipping unit in line or slightly lower than the overall market.

Industry research group Alphaliner has projected that global container trade will contract 7.3% this year from 2019 levels.

The company swung to a quarterly net profit of $197 million from a loss of $659 million in the same period last year, beating average expectations by analysts of $25 million in earnings, according to FactSet. Earnings last year were weighed down by a $552 million loss on discontinued operations.

Revenue rose 0.3% to $9.57 billion, while earnings before interest, tax, depreciation and amortization of $1.52 billion beat Maersk’s own guidance of $1.4 billion.

Maersk Line, the company’s shipping unit and main earner, made a profit of $1.2 billion in the first quarter, up 25% from a year ago.

Shipping executives expect the world’s top 10 carriers to end the year deeply in the red. Industry analysts have said that could trigger some failures as carriers with strong cash holdings and access to credit markets outlast weaker operators.

France’s CMA CGM SA, the world’s fourth-largest container line, said Wednesday it had secured a €1.05 billion ($1.14 billion) bank loan backed by the French government to help it weather an expected 10% drop in its business.

It is the first time that a European government had guaranteed a loan of that scale to a private shipping company. Under the terms, the carrier must pay the loan back in a year but it get an extension of up to five years.

Maersk is in a strong financial position with $9.2 billion in cash reserves and access to revolving credit facilities, according to Mr. Skou. Along with other liners it is benefiting from substantially lower fuel prices.

Mr. Skou said he doesn’t expect the world to emerge from the pandemic-driven downturn with large changes in major trade patterns even though some political leaders have called for “reshoring” of manufacturing from Asia to domestic factories in Western countries.

Production of medical supplies now produced in China will be diversified, he said. “But masks and personal protection equipment don’t matter in terms of volumes in global trade and there is nothing to suggest that the manufacturing of electronics, toys, clothing, shoes, parts and others will not continue to be in Asia,” Mr. Skou said.

 

Read from the original source.

 

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