Maersk makes money in falling market but is pessimistic

The second quarter results from Maersk were complicated. On the one hand results were better than might be expected, on the other there was pessimism from the management over the direction of the market.

Revenue in both the second quarter and first half of the year nearly halved, with the former dropping 40% to US$12.98bn from US$21.65bn in Q2 2022. Profits fell even more violently, with Earnings Before Interest, Tax and Depreciation (EBITDA) crashing from US$10.3bn in Q2 2022 to US$2.9bn in Q2 2023. Yet that still represents a margin of 22.4%, which for a logistics company, is not bad.

Perhaps the greatest note of pessimism came from Maersk’ view of the prospects of the container shipping market. The presentation to investors observed that “the inventory correction observed since Q4 2022 appears to be prolonged and is now expected to last through year end. Based on the continued destocking, A.P. Moller – Maersk now sees global container volume growth in the range of -4% to -1% compared to -2.5% to +0.5% previously”. This weak demand picture has been reflected in the freight rates that Maersk’s container shipping business charged, with these falling by 51%, whilst volumes handled dropped by 6.1% year-on-year. The good news for Maersk is that its costs fell. The ‘Ocean’ container shipping business saw cost-per-container fall by 11%, although this may just represent another return to normality after the spike in prices over the past two years.

Sales shrank in other parts of the Maersk Group, with the ‘Logistics and Services’ business seeing a 3% fall in revenue year-on-year, in great part due to the ‘Managed by Maersk’ segment seeing a fall in demand from retail customers. The terminals business saw revenue fall 15% although profits did not collapse, with EBITDA down by US$69m from US$400m in Q2 2022. It is perhaps surprising that Maersk Terminals have not fallen back more, bearing in-mind the extraordinary market conditions seen in 2021-2022.

Vincent Clerc, Maersk’s CEO, referred to the increasing number of vessels on the container shipping market and the subdued growth in demand from customers. He also said that so far, the situation had been managed through adopting measures such as slow steaming. This may be not be enough to sustain present margins in future quarters, however it should be noted that the company is still performing well by historical standards.

Author: Thomas Cullen

Source: Ti Insights

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