Maersk warns that global shipping demand is falling

A warning from AP Moeller-Maersk sent ripples through the shipping industry on Wednesday morning, leading to a 5% drop in the shipping giant’s share price in the early hours of trading that has signaled darker realities could be ahead.

The peak

As discussed on More Than Shipping regarding container security in the ports of Long Beach and Los Angeles, demand across all sectors fell in the second half of 2022, resulting in minimal product security in US ports. The sudden shift in demand, while a positive change for some aspects of the supply chain, has affected the container shipping industry.

“It is clear that freight rates have peaked and started to normalize during the quarter, reflecting both falling demand and a reduction in supply chain congestion,” Maersk’s statement on Wednesday read, confirming trends observed by many supply chain experts that became self-evident in the third quarter of 2022. According to Yahoo Finance, the Baltic Dry Index, which serves as a weather vane for the general shipping market, is down more than 75%. from its peak in 2021.

The 5% drop in the share price, observed Wednesday morning, marks a 38% drop from the stock’s record high on Jan. 13 this year — a key change for the shipping giant, which currently accounts for 17% of the world market share.

The case

There are many factors contributing to the current state of the shipping industry, but perhaps the most important indicator of recent stock price movements is the impending economic downturn. “With the war in Ukraine, an energy crisis in Europe, high inflation and a looming global recession, there are many dark clouds on the horizon,” Maersk’s statement continued.

Maersk is forecasting a 2-4% drop in global container demonstrations this year as the economic downturn is projected to last into 2023. The shipping industry has been one of the most profitable sectors during the pandemic for several years, but that could change. As demand surged during the pandemic, so did freight rates, which have remained high, but we may finally be starting to feel those rates leveling out.

Finally

While Maersk’s revenue is expected to rise 37% this year, JP Morgan implied that core earnings could fall as much as 40% in the fourth quarter compared to the third quarter. As container shipping rates fall, Maersk has turned attention away from the cyclical slowdown in ocean shipping to increase its presence in its growing land-based logistics arm. They recently acquired LF Logistics, which helped grow revenue by over 60% through this operation in the third quarter.

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