Maersk: oversupply set to extend shipping downturn

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Headwinds, crosswinds and plenty of chop. The global shipping industry is contending with falling freight rates, weak consumer demand and too many ships.

Denmark’s AP Møller-Maersk offered an update on the situation at its third-quarter results on Friday. The container line operator reported steep falls in profits and revenues compared to last year. With shipping markets in a swirl, groups like Maersk have few options but to batten down the hatches, cut costs and preserve cash. Maersk said it may even scrap a share buyback scheme planned next year.

The shares reacted with an 18 per cent dip on the day, extending the total losses from last year’s peak to 60 per cent. Shareholders will have to accept lower returns as the market rebalances in the next few years, though Maersk is far from financially distressed. Its net cash position has halved since the end of 2022 but is still almost $7bn,

Shipping knows the story of boom and bust all too well. The pandemic exaggerated the former as supply chains broke down and freight rates soared to new records. The industry reacted by placing record orders for new ships, encouraged by the demand for cleaner, greener vessels.

Net of scrappage, the global fleet might grow by 6.4 per cent in 2024, thinks consultancy Drewry. “Record oversupply of up to 25 per cent will continue to push freight rates lower next year,” argues Philip Damas, head of Drewry Supply Chain Advisors.

Weak demand adds to the pain. Maersk expects volumes to be as much as 2 per cent lower this year. In response, it is cutting 10,000 jobs to save around $600mn of costs next year. Capital spending will fall by about $1bn at $8bn this year.  

Earnings will remain under pressure as freight rates fall. Analysts expect the company to make a net loss next year. Priced at 16 times three year forward earnings, the shares are still valued well above their long run average. Expect shareholders to continue to bail out.