A complex market is not supporting profits at Maersk

Maersk’s results for the first quarter of 2024 are complex due to the variety of different market problems affecting the company. For the whole Group, revenue fell on a year-on-year basis by 13% to US$12.3bn whilst EBIT (Earnings Before Interest and Tax) crashed to $177m from $2.3bn in Q1 2023.

At Maersk’s core ‘Ocean’ shipping business, revenue fell by 20% year-on-year to $8bn as freight-rates fell by 18% despite 7.5% higher container through-put volumes. However, revenue has jumped 12% since the fourth quarter of 2023. It is not just the Red Sea crisis that is supporting rates. Certainly, Asia-Europe trades are seeing higher volumes but so are North and South American, African, and inter-regional trades. Yet the lower freight-rates over the year have forced EBITDA (Earnings Before Interest, Depreciation, and Amortisation) 70% lower to $956m, whilst EBIT was negative, with a loss of $161m. This is despite a modest increase in the size of the fleet, with capacity up just 68,000 TEU year-on-year.

The ‘Logistics & Services’ business in contrast, saw revenue climb by 1% to $3.5bn but gross profit fell as margins in this business also came under pressure. EBIT fell to $54m from $135m in Q1 2023 with margins down to just 1.5%. Generally, volumes are much higher than at the start of last year, but flat quarter-on-quarter. Rates in markets such as transport and warehousing are weakening in the face of stiff competition and this is weakening profits.

The ‘Terminals’ business was happier, with revenue up 14% year-on-year and EBIT up 45% at $300m. Through-put volumes are up 10% year-on-year and utilisation is 4% higher. The difference between the Terminals business and the other two divisions is that prices are more firm, compensating for the lower level of demurrage.

Generally, Maersk seems somewhat pessimistic. It comments that “with the Red Sea crisis still ongoing, plans are made for the current rerouting south of the Cape of Good Hope to be extended potentially for the remainder of the year”. Yet Maersk does not seem to think that this will support prices, where “Maersk still expects overcapacity to prevail which implies lower rates during the second half”.

Author: Thomas Cullen

Source: Ti Insight

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