On Thursday, Maersk, the container shipping company, cautioned that the disruptions in Red Sea trade would not have a substantial positive impact on the company. Furthermore, the surplus of vessels in the market is expected to negatively impact its earnings for the current year, resulting in a notable decline in its shares. The Danish group suspended its share buyback program as it expects a fall in profits to persist for the rest of this year. The warning, which also led Maersk to cut its dividend by 88%, starkly contrasts with investors’ recent optimism about the sector after a slump in oil prices and the global economy helped revive freight rates.
Maersk, a key barometer for world trade, forecasts underlying earnings before interest, tax, depreciation, and amortization (EBITDA) of between $1 billion and $6 billion this year, well below the $9.6 billion it earned last year. The company reiterated its view that the industry’s supply of container ships will linger into 2024, even though spot freight rates have recovered since the end of pandemic-era bottlenecks.
The shipping sector has been weakened by a global economic slowdown and the aftermath of a boom in capacity that drove up prices during the COVID-19 pandemic. As demand grew, shipowners ordered huge fleets, but the glut has caused freight rates to fall from record highs. The chaos in the Red Sea has added to the pressure on rates.
In the latest report, Maersk said that its revenue in the fourth quarter fell 24% from a year earlier, and its EBITDA slumped by the same amount. The company also said it was preparing for a further slowdown in shipping volumes this year and would need to idle more vessels, in line with its strategy of balancing fleets.
Container shipping companies have been rerouting their shifts away from the Red Sea, which usually carries about 12 percent of the world’s maritime trade. The move has been forced by attacks by Iran-backed Houthi rebels in Yemen, who say they are responding to Israel’s bombing campaign against Gaza. The rerouting has also increased costs because it requires ships to take the longer route around South Africa, adding two weeks to journey times.
Maersk’s chief executive, Vincent Clerc, said on Thursday that the current situation in the region “in no way resembles what happened to container shipping during the pandemic.” He added that the disruptions would have only a limited impact on its results.
Maersk’s shares, which have gained 14% this year, plunged over 12% at the open on Thursday, and rival Hapag-Lloyd dropped around 10%. Sydbank analyst Mikkel Emil Jensen called the financial report a “weak” one and said the firm’s guidance indicated it could see a net loss for 2024. (Reporting by Marianne Saxe-Coburg; Editing by James McGrath)
