Maersk to Cut 10,000 Jobs as Demand Drops.

 

"Shipping and logistics giant A.P. Moller-Maersk said it would cut more than 10,000 jobs, as a pandemic-fueled cargo boom has ended, leaving the industry with a surplus of ships and sharply lower freight rates.

Maersk, a bellwether for global trade, saw its third-quarter profit plummet to $521 million from $8.88 billion last year. Its main Ocean division posted a quarterly loss for the first time in many years.

The company's shares slumped in Copenhagen by about 11%. Shares of rival Hapag Lloyd in Frankfurt fell by 8%.

Maersk and its rivals enjoyed record profits over the past two years as the pandemic drove a surge in demand for goods, which coupled with port congestion, drove freight rates sharply higher. But many sailings across the big ocean trade are now becoming loss-making.

Freight rates fell 58% year on year in the third quarter and are down 90% from their peak during the pandemic. Revenue in Maersk's main shipping business fell 56% year on year to $7.9 billion.

Container lines dug themselves into a hole by ordering too many ships during the pandemic to move record amounts of cargo and are now looking at a weaker market. Americans are back spending but are buying fewer big-ticket items like cars, home improvements or tech gear that move in boxes across the seas.

Chief Executive Vincent Clerc said shipping is facing a new normal with subdued demand and inflationary pressure. "Since the summer, we have seen overcapacity across most regions triggering price drops," Clerc said.

Maersk expects the market to remain volatile and will cut its workforce below 100,000, from 110,000 at the start of the year. This will result in savings of $600 million next year (60 000 dollars per person).

Given the uncertainty ahead, it will also cut capital expenditure this year and next while placing its share buyback program under review.

Maersk expects full-year underlying earnings before interest and tax of $3.5 billion to $5 billion, with the company guiding toward the lower end of the range.

Analysts say the industry imbalance will take time to clear. "This year is one of transition, but 2024 will most definitely be tough," said Peter Sand, chief analyst at Xeneta, a Norway-based shipping-data provider. "We expect container demand next year at around 2% and fleet growth at 6%, meaning a glut of ships into the water well into 2025."" [1]

1. EXCHANGE --- Maersk to Cut 10,000 Jobs as Demand Drops. Chopping, Dominic; Paris, Costas.  Wall Street Journal, Eastern edition; New York, N.Y.. 04 Nov 2023: B.10.