In a report published by Reuters Maersk warned on Thursday that shipping overcapacity would hit profits more than expected this year and that it did not see a major boost from the jump in freight rates due to Red Sea, most likely due to the Houthi Rebel forces.
They have also suspended their share buyback program following this warning.
However, container shippers have been among the best-performing stocks in Europe this year despite the re-routing of vessels in the Red Sea. But Maersk's shares were down 17% percent levels that were seen before the Red Sea interruptions began in December last year. Their rival company, Hapag-Lloyd, was around 11% lower according to the report. Maersk, like many other shippers, has been diverting their ships on a longer journey around Africa leading to analysts believing that these extended journeys and higher freight weights would outweigh a boost in new container ships making their way into the market.
Words From The CEO
But Maersk's CEO, Vincent Clerc, spoke to reporters and told them that about twice as many new ships were entering the market when compared to the extra capacity needed to send vessels along the new route. The Covid-19 pandemic boost to shipping profits has led to a wave of new vessel orders. The vessels delivered at the end of last year covered the gaps that have been created by the longer journeys around Africa however the overcapacity would only come about during 2024 and only be felt in 2025 and possibly in 2026 Clerc told reporters. Clerc provided the following statement "We will see that there are too many ships in the world compared to the number of containers that need to be transported. Even if a year from now we're still sailing south of Africa, excess capacity and pressure on prices will persist."
The company has been seen as a benchmark of world trade and has stated that its expected underlying earnings before interest, tax, depreciation, and amortization to be between $ 1 billion and $ 6 billion which could be concerning considering the company had reached $9.6 billion last year. The company has stated that one-third of its container volumes had been impacted by the conflict in the Red Sea and while the company had attempted to make its way through the oceanic territory, the United States Navy stated it could not currently guarantee safe passage through the territory. Clerc had stated "It's not going to be the case that just because nothing has happened there for a week, we can try again. We need to be sure that the day we return to the Red Sea, it's because we believe we can do it permanently."
Clerc also said that the Red Sea conflict didn't match the scale of disruption caused by the pandemic when freight rates and shipper profits were hit by lockdowns, bottlenecks, and changes in consumer behavior. He ended on a positive note with the following "In this case, it's only a longer transit time. The moment we start sailing via the Suez Canal again, prices will fall immediately."
