Maersk predicts soft freight volumes through yearend

While shipping giant Maersk released stable second-quarter results, the company lowered its estimates for global trade, expecting a “subdued environment” for the remainder of the year. Maersk’s revenue for Q2 was $13 billion, a year-over-year decrease of 40%. “I am overall very pleased with the company performance in a very challenging market circumstance, achieving a group revenue of $13 billion this quarter and a robust EBIT margin of 12.4%,” Chief Executive Vincent Clerc said in today’s earnings call. WHY IT MATTERS: Cargo market leaders view Maersk’s quarterly financial results and outlooks as important market signifiers. With Maersk expecting a continued depression of the cargo market, carriers, forwarders and others in the industry may be reevaluating their strategies for the rest of 2023. THE BIG PICTURE: Logistics and services business performance continues to be impacted by lower volumes as a result of continued destocking and lower consumer demand as well as lower rates, particularly in the air market, Maersk said in its earnings report. As in ocean, which continues to see reductions due to market normalization post-pandemic, market demand is expected to continue to be subdued for as long as the destocking process lasts. “The volume and rate environment has developed as anticipated within the inventory destocking continuing to be the primary driver for lower volumes, which could be felt in the performance of all our segments,” Clerc said. “In logistics and services, the impact of this normalization process was felt stronger than we had anticipated, resulting in growth below our expectations.” BY THE NUMBERS: Clerc called Q2’s earnings “robust,” despite decreases in revenue and EBIT. Other results included: Revenue for the first half of 2023 was $27.2 billion, down 33.6% YoY; EBIT for Q2 was $1.6 billion, down 82.1% YoY; EBIT for H1 was $3.9 billion, down 75.8% YoY; Logistics and services revenue for Q2 was $3.4 billion, down 3.3% YoY; Logistics and services revenue for H1 was $6.9 billion, up 7.5% YoY; Airfreight volumes in Q2 were 72,000 tonnes, up 35.8% YoY; and Airfreight volumes in H1 were 128,000 tonnes, up 52.4% YoY. WHAT THEY’RE SAYING: Analysts are looking to Maersk’s revised outlooks as a sign of continuing decline in freight volume and revenue for the foreseeable future. “Maersk’s solid 2Q beat and improved full-year guidance are overshadowed by expectations of a prolonged inventory correction, recession risks and weaker volume, which may shape the company’s credit story in the coming months,” Bloomberg Intelligence credit analyst Stephane Kovatchev said in a Bloomberg report. “Softer freight rates, which were down 51% in 2Q, coupled with new ship deliveries and lower disposable incomes could lead to deteriorating credit metrics in 2H and 2024.” STATE OF PLAY: Air freight volumes fell again YoY in Q2, though the pace of decline has slowed compared to Q1, according to the earnings report. North America saw cargo tonne kilometer volumes fall an average of 11% during April and May, while Asia-Pacific and Europe volumes were down 2% and 7%, respectively, according to IATA figures. At the same time, the return of passenger flights expanded capacity further. According to IATA, global cargo load factors were 42.1% in April and May compared to 45.5% in Q1, and rates deteriorated further. “Our logistics and services segment is particularly sensitive to container volumes in the retail and lifestyle sectors, especially in Asia Pacific and North America,” Chief Financial Officer Patrick Jany said in the earnings call. “The organic development is actually in line with some ocean indicators, where North American volumes remained the weakest, down 23% year-to-date and down 17% in the first two months of the second quarter.” Demand for airfreight through yearend is expected to be in the -5% to -2% range, according to the earnings report. [caption id="attachment_57132120" align="alignright" width="300"] Photo/ Maersk Air Cargo[/caption] NOTEWORTHY: Maersk recently made its debut in the No. 25 spot on Air Cargo Next ’s Power 25 list of top airfreight forwarders. The company launched Maersk Air Cargo in the second half of 2022 and now has 12 Boeing 767-200s and 10 Boeing 767-300s. MARKET REACTION: Maersk stock ( NASDAQ:AMKBY ) fell following the company’s earnings call. It ended today at $9.39 per share, a 5.05% decrease from market open. During Q2, Maersk bought back 85,837 A shares and 355,199 B shares, worth $792 million. FUTURE LOOK: While Maersk increased its EBIT outlook for the rest of the year — going from a minimum of $2 billion to a minimum of $3.5 billion, and maintaining a maximum of $5 billion — the company does expect the inventory correction observed since Q4 2022 to be prolonged and last through yearend, according to the earnings report. Based on the continued destocking, Maersk now sees global container volume growth in the range of -4% to -1% compared to -2.5% to 0.5% previously. “While the first half-year has developed essentially in line with our expectations, we do not see any signs of an expected volume rebound in the second part of the year,” Clerc said. “Looking at the longer-term trajectory in logistics and services, we can see that compared to where we were pre-pandemic, the segment now consistently generates value for the company and has a much broader footprint,” he continued. “We expect a return to strong organic growth once the cyclical effects of the normalization have been worked out.” Join Air Cargo Next for the second annual Air Cargo Tech Summit on Monday, Sept. 18, and Tuesday, Sept. 19, at the Brussels Marriott Hotel Grand Place in Belgium. For more information on the summit and to register, click here .

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