Maersk Records Weak Demand and Slow Growth Amid Economic Downturn

Photo Credit: Chris Ratcliffe/Bloomberg

Shipping container demand has also been negatively affected by the economic downturn of the globe, revealed AP Moller-Maersk on Wednesday after recording a significant loss on their demand. This is exacerbated by the decline of consumer confidence and the supply chain disruption.

Considered as a barometer for global trade, the Danish shipping and logistics company compared its second quarter data from last year and found out that there is a 7.4% decline in the loaded container ships this year. The discovery compelled the Maersk management to change its outlook for this year for their container business sector.

“Geopolitical uncertainty and higher inflation via higher energy prices continued to weigh on consumer sentiment and growth expectations,” said the company.

“Given this background, in 2022 global container demand is now expected to be at the lower end of the -1% to +1% forecasted range,” the statement added.

The range that Maersk is expecting is brough by worsening inflation and disruption in the energy supply.

According to the company statement issued by CEO Soren Skou:

“The result was driven by strong contract rates in Ocean, rapid profitable growth in Logistics and continued solid performance in Terminals. Volumes in Ocean were softer as congestion continued and the war in Ukraine weighed on consumer confidence, particularly in Europe. However, in Logistics we grew volumes above the market as our Ocean customers continue to buy into our value proposition, resulting in organic revenue growth of 36pct., notching up the 6th quarter in a row of more than 30pct. organic growth.”

Congestion in shipments caused decline

The effects of the Covid-19 lockdown and the war between Russia and Ukraine has become apparent within the industry. According to Maersk, the slowdown of container shipments was highly evident in Europe where stockpiles have built up in ports – due primarily to blockades and shipment restrictions.

“In Europe, supply chain congestion remained as retailers and manufacturers kept containers in ports and warehouses due to weak final demand. Port lockdowns in China due to the Covid-19 zero-tolerance policy as well as consequences from the war in Ukraine also caused strains in key areas of the logistics network,” Maersk said in its statement.

Maersk has announced that they beat the expectation of their freight department during the second quarter. The freight business is going well because the trade congestion has eased global freight prices. The logistics business raised in profit because the conditions have made “exceptional market conditions” says Maersk.

“Continued congestion and dislocation of supply and demand fundamentals in the logistics industry increases the uncertainty surrounding the outlook for freight rates,” the company said.

Second quarter data

Maersk’s profit increased by 52% year-on-year, reaching $21.7 billion in recent data while operating profits doubled to $8.9 billion.

Higher freight rates mean large sums of revenue for the container shipping industry. In the current landscape, it has become a necessity for the companies to access shipping services to make up for market disruptions and to deliver their goods to the intended destinations.

According to Hapag-Lloyd AG, a shipping group, amped up the forecast for the average freight rates to 80% for the first half of the year.

According to Maersk, freight rates have gone down recently but they are still comparably higher than average – floating around the highest on records. Prices are bound to fluctuate as factors come in said the company.

“We delivered an exceptionally strong result for the second quarter and consequently recorded the 15th quarter in a row with year-on-year earnings improvements. We are pleased with our performance across the business in first half of 2022, which clearly demonstrates the progress and great work by the entire Maersk team, transforming the company towards becoming a global, integrated logistics company,” said Soren Skou, the CEO of AP Moller Maersk.

Source: CNBC

Opinions expressed by US Business News contributors are their own.

Ivan Ryan

Posted by Ivan Ryan

Ivan is a digital marketer with an interest in business. He loves reading self-help books and memoirs of successful people in business.

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