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Maersk Tumbles as Red Sea Crisis Stings

  • Maersk's fourth-quarter earnings fell below analysts' expectations, leading to a sharp decline in share price and the immediate suspension of the share buy-back program.
  • The company highlights significant oversupply challenges in container shipping for 2024, projecting global container trade growth of 2.5% to 4.5%.
  • The Red Sea crisis, caused by Houthi rebel attacks, has led to increased shipping, fuel, and insurance costs, as well as extended transit times, contributing to global inflation concerns.
Ship

Shares of A.P. Moller-Maersk A/S in Copenhagen plunged on Thursday. This decline occurred after the world's second-largest shipping company announced fourth-quarter earnings and guidance that fell short of analysts' forecasts, alongside the cancellation of its stock repurchase program.

Vincent Clerc, chief executive of Maersk, wrote in a statement, "While the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates, eventually, the oversupply in shipping capacity will lead to price pressure and impact our results."

Maersk said, "Given the heightened uncertainty, the Board of Directors has decided to immediately suspend the share buy-back programme, with a re-initiation to be reviewed once market conditions in Ocean have settled." 

Shares in Copenhagen-listed Maersk sank as much as 17% in trading on Thursday. For the week, the shares are on track to record the largest decline since the first week of November. 

The company reported fourth-quarter profit below expectations, with EBITDA for the quarter sliding to $839 million versus the $1.04 billion anticipated by analysts.

Here's a snapshot of fourth-quarter results (courtesy of Bloomberg): 

  • Ebitda $839 million, -87% y/y, estimate $1.04 billion
  • Ocean Ebitda $196 million, -97% y/y, estimate $419.1 million
  • Terminals Ebitda $303 million, +5.2% y/y, estimate $320.3 million
  • Towage & Maritime Services Ebitda $88 million, +7.3% y/y, estimate $71 million
  • Logistics & Services Ebitda $285 million, -13% y/y, estimate $338.4 million
  • Ocean Ebitda margin 2.7% vs. 45.4% y/y, estimate 5.58%
  • Logistics & Services Ebitda margin 8% vs. 8.5% y/y, estimate 9.21%
  • Terminals Ebitda margin 29.7%, estimate 33.2% 
  • Ebit loss $537 million vs. profit $5.12 billion y/y, estimate loss $454.3 million
  • Revenue $11.74 billion, -34% y/y, estimate $11.54 billion 
  • Ocean revenue $7.18 billion, -46% y/y, estimate $6.95 billion 
  • Logistics & Services revenue $3.54 billion, -8.2% y/y, estimate $3.59 billion
  • Terminals revenue $1.02 billion, +2% y/y, estimate $962.3 million
  • Towage & Maritime Services Revenue $571 million, +0.5% y/y, estimate $553 million
  • Average loaded freight rate ($/FFE) $1,925, -50% y/y, estimate $1,897

Here are the 2023 full-year results:

  • Ebitda $9.59 billion, -74% y/y, estimate $9.84 billion
  • Revenue $51.07 billion, -37% y/y, estimate $50.94 billion
  • Net income $3.91 billion, -87% y/y, estimate $3.5 billion
  • Dividend per share DKK515, estimate DKK542.82
  • Ebit $3.93 billion, -87% y/y, estimate $3.64 billion

Looking forward, Maersk anticipates "significant oversupply challenges" in container shipping throughout 2024, with the impact extending out as far as 2026. The company forecasts that global container trade will see an estimated growth of between 2.5% and 4.5% this year. 

Here's more on the 2024 outlook: 

  • Sees global container trade +2.5% to +4.5%
  • Sees underlying Ebitda $1 billion to $6 billion, estimate $6.41 billion (Bloomberg Consensus)
  • Sees underlying Ebit loss $5 billion to $0, estimate loss $1.03 billion

"The outlook for 2024 appears even more challenging than 2023 in the Ocean division, as oversupply of vessels peaks and Maersk's contract exposure provides them limited benefit from spot rate increases following Red Sea diversions," Barclays analysts wrote in a note to clients this morning.

Maersk, like many other major shipping companies, has diverted containership sailings from the Red Sea to the Cape of Good Hope following two months of Iran-backed Houthi rebel attacks on commercial vessels. This has pressured shippers by raising container, fuel, and insurance costs, among many other costs, as well as adding 1-2 weeks to the journey. 

On Monday, the OECD issued a warning in a report, stating that diverting around the Red Sea is expected to increase inflation. This comes at a moment when central banks worldwide are fighting the inflation monster. 

Separately, CEO Clerc joined Bloomberg TV in an interview where he warned the Red Sea crisis is worsening: 

"The amount or the range of weapons that are being used for these attacks is expanding and there is no clear line of sight to when and how the international community will be able to mobilize itself and guarantee safe passage for."

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And on Wednesday, Japanese shipping giant Mitsui OSK Lines Ltd. told Bloomberg that the crisis in the Red Sea could last upwards of "six months or one year." 

Remember, the container shipping industry is a bellwether of global trade. 

By Zerohedge.com

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