Shipping group A.P. Moller-Maersk (MAERSKb.CO), the world’s second-biggest liner business, reported a steep drop in third-quarter profit and revenue on Friday and said it would cut at least 10,000 jobs as container markets have turned into a “new normal” of subdued demand. Maersk, which controls about one-sixth of global container trade, transporting goods for a host of major retailers and consumer goods companies such as Walmart and Nike, flagged a steeper downturn in demand than analysts and investors had expected.
The Copenhagen-based company, which expects to save $600 million next year through the job cost measures, put its 2024 share buyback program under review and reduced its estimate for capital expenditure in 2023 and 2024. Its shares fell 11.1%.
Maersk, which has sites at 12 ports, 23 depots, and nine dedicated refrigerated containers in the UK, declined to give details of where the cuts will impact its operations here. Its main UK office is in Liverpool, while it also has sites in Belfast in Northern Ireland, Felixstowe in Suffolk, Grangemouth in Scotland, London Gateway in Corringham, South Shields, Portsmouth, Southampton, and Tilbury in Essex, among other places.
Container lines like Maersk enjoyed record profits last year as high demand for consumer goods during the pandemic, coupled with supply chain bottlenecks and port congestion, drove freight rates sharply higher. But this year, economic growth has lost steam, and companies are working through existing inventories as they wait for a rebound in demand. As a result, freight rates have fallen back near 2019 levels.
“The container market is entering a new normal of subdued demand, lower freight rates, and increasing pressure on margins,” Maersk Chief Executive Vincent Clerc said in a statement. “It’s clear that the current environment is challenging for many of our customers, and we will continue to provide them with support as they navigate this difficult transition.”
Maersk has imposed rigorous cost containment measures during the year to cushion the impact of the challenging market conditions. But it is now stepping up those efforts. The company lowered its headcount from 110,000 in early 2023 to about 103,500 today and will intensify its cost-saving measures.
Maersk expects global container volumes in its ocean business to fall by up to 2% this year, mainly as firms work through their pandemic-related inventories and consumers remain cautious. The company, which predicts a global economic slowdown this year, has warned that its profits will probably decline by mid-single digits. Its underlying EBITDA slipped to $2.91 billion in the three months leading up to April, well below analysts’ expectations of $2.41 billion, according to a Refinitiv poll. The company’s underlying earnings in 2023 are forecast to be $8 billion to $11 billion. That’s below its target of $10 billion to $15 billion. Maersk has a strong balance sheet and is not raising capital, Clerc said. But it is reducing its dividend by about a fifth.