Maersk new profit update suggests congestion is driving up rates

maersk Q1

Maersk released on Monday, June 3, an ad hoc announcement increasing its ‘guidance’ for the performance of the company for the full year 2024.

The statement said that “on the back of continued strong container market demand and the disruption caused by the ongoing crisis in the Red Sea, A.P. Møller – Mærsk A/S (APMM) now also sees signs of further port congestions, especially in Asia and the Middle East, and additional increase in container freight rates. This development is gradually building up and is expected to contribute to a stronger financial performance in the second half of 2024”. In terms of results Maersk said that profits would be markedly higher than it had estimated last month, with what it called an “underlying EBITDA” (Earnings Before Interest, Depreciation, and Amortisation) being US$7-9bn as opposed to the US$4-6bn forecast last month. EBIT (Earnings Before Interest and Tax) would be US$1-3bn, up from a forecast of at best, no profit.

An increase in profits of more than half is quite significant. That Maersk made this announcement a little more than a month after its first-quarter results suggests that the conditions in container shipping must have changed rapidly and dramatically. Even in last month’s quarterly numbers, Maersk said its average container freight rate was 23% higher in the first quarter compared to the fourth quarter of 2023, a trend that it foresaw as moderating only slightly in the second half of the year. This new announcement suggests that rates are not moderating, rather they must be at least being sustained at the levels seen in January to March.

As implied in the Maersk statement, one of the problems now driving freight rates is the impact of port congestion. Singapore in particular is reporting delays in handling ships, however other ports that have emerged as hubs for trans-shipment on the new Cape of Good Hope route are struggling to cope. This appears to be restraining capacity and thus driving up rates. It does appear to be superficially similar to the effects of port congestion in 2021-2022. Combined with growth in demand from sectors of the market such as Chinese exports, such congestion threatens sustained, higher rates for the foreseeable future.

Author: Thomas Cullen

Source: Ti Insight

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