Maersk alerts Overstock Could Impact Profits

Maersk alerts impact on Profits

Report: Maersk alert overstock could hits profits

9th February 2024

In a stark contrast to recent optimism, Danish shipping giant Maersk sent shockwaves through the industry on Thursday by warning that overcapacity in container shipping will significantly impact profits this year. This unexpected announcement, coupled with the suspension of its share buyback program, sent Maersk’s shares plummeting 17%, wiping out gains from the Red Sea disruptions.

The container shipping industry, a key indicator of global trade, witnessed a boom during the pandemic. This led to a surge in new ship orders, anticipating continued high demand. However, Maersk CEO Vincent Clerc painted a different picture, highlighting that “twice as many new vessels are coming to market compared to the extra capacity required.” This oversupply, he added, will fully materialize in 2024 and be felt well into 2026, squeezing profit margins.

Despite the Red Sea disruptions causing a jump in freight rates due to rerouted vessels, Clerc downplayed its long-term impact. He stated that the crisis “did not match the scale of disruption caused by the pandemic” and its effect on freight rates will be temporary. This contradicts analysts at JP Morgan who predicted a first-quarter boost from the Red Sea events, followed by a return to the overcapacity scenario.

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Maersk’s revised profit forecast further dampened investor sentiment. The company now expects underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to fall between $1 billion and $6 billion this year, significantly lower than the $9.6 billion achieved in 2023. This unexpected dip, coupled with the suspension of the share buyback program, contributed to the sharp fall in Maersk’s share price.

The news also impacted other European container shipping companies, albeit less severely. Hapag-Lloyd, a major competitor, saw its shares drop by around 11%. This highlights the broader concern within the industry about the looming oversupply issue.

Conclusion

Maersk’s alert is a clear reminder of the challenging problems that the shipping industry around the world is facing. The Red Sea disruptions provided a brief respite, but the impending glut threatens the industry’s long-term viability. In the upcoming months and years, stakeholders and investors will be closely observing how businesses like Maersk handle this difficult environment.

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