Shipping giant Maersk says overcapacity will hit profits, playing down Red Sea disruption boost

Maersk has warned container shipping overcapacity will hit profits more than expected this year.

The Danish company also said it did not see a big boost from the jump in freight rates due to Red Sea disruptions, hammering its shares.

The warning, which also led the company to suspend its share buyback programme, is in stark contrast with investors’ recent optimism about the sector.

Container shippers have been among the best performing stocks in Europe so far in 2024 as the rerouting of vessels following attacks on shipping by Iranian-backed Houthi militants in the Red Sea - a big trading route - boosted freight rates.

Maersk, like other shippers, has been diverting some vessels on a longer route around Africa, and some analysts had expected longer journey times and higher freight rates would outweigh a big increase in new container ships joining the market.

However, Maersk chief executive Vincent Clerc told reporters in Copenhagen the Red Sea crisis did not match the scale of the bottlenecks caused by the pandemic, which boosted shippers’ profits, and that Maersk did not expect a big impact.

Instead, the company said it expected “significant oversupply challenges” in container shipping to materialise fully during 2024, and be felt in 2025 and possibly into 2026.

The pandemic boost to shipping profits in 2022 resulted in a wave of new vessel orders.

“The outlook for 2024 appears even more challenging than 2023 in the ocean division, as oversupply of vessels peaks and Maersk’s contract exposure provides them limited benefit from spot rate increases following Red Sea diversions,” Barclays analysts said in a research note.

Maersk’s shares were down 14 per cent on Thursday morning, while those of rival Hapag-Lloyd fell around 8 per cent.

Maersk, viewed as a barometer of world trade, said it expected underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of between $1 billion (€900 million) and $6 billion (€5.6 billion) this year, compared with the $9.6 billion (€8.9 billion) achieved last year.

“High uncertainty remains around the duration and degree of the Red Sea disruption with the duration from one quarter to full year reflected in the guidance range,” it said in a statement.

Analysts in an LSEG poll are on average forecasting Maersk to post EBITDA of $6.6 billion (€6.1 billion) this year.

Maersk said EBITDA dropped to $839 million (€778 million) in the fourth quarter from $6.54 billion (€6 billion) a year earlier, lagging analysts’ expectations of $1.13 billion (€1.04 billion).

Sydbank analyst Mikkel Emil Jensen called the financial report “weak” and said the company’s guidance indicated a net loss for 2024.

The company also suspended its share buyback programme and said it would review the decision once market conditions in ocean container shipping had settled. – Reuters