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Maersk recession pain could yet get more acute

 

A.P. Moller Maersk is experiencing the dark side of relief in the world’s recovering supply chains. The $38 billion Danish shipping giant made nearly $11 billion of EBITDA in the three months ending September, beating analysts’ expectations, but also warned that a global recession will drive demand for containers down 2% to 4% in 2022, worse than the minus 1% to plus 1% Chief Executive Soren Skou previously predicted. The gloomy outlook is a reversal of fortunes for Maersk, which enjoyed record operating profit when supply chain bottlenecks drove up the average cost of shipping one forty foot container from A to B to $11,000 during the pandemic. In 2019, these rates hovered around $1,300. They have now fallen below $4,000, and a recession could drive them down further.

 

Investors were already preparing for stormy seas. Before Wednesday’s 5% share price fall, the value of the company’s stock was off 30% since the beginning of the year. But there could be worse to come as the shaky global outlook creates a vicious circle. Falling freight rates and volumes could encourage Maersk’s clients, who have flexible contracts, to scale back on their shipping orders. The clients can then buy up freight contracts in the open market, which are cheaper than contracts signed months ago. The risk is Skou may have to slash the company’s forecasts again.