Expect ocean carriers to see dwindling profits throughout 2023 as container demand and volume continue their descent, if the earnings report from AP Moller-Maersk is any indication.
The freight giant reported a 26 percent decline in first quarter revenues to $14.2 billion from $19.2 billion in the 2022 period, while net underlying profit fell 66 percent to $2.6 billion from last year’s $7.5 billion in the wake of freight rates that have declined by an average of 37 percent year-over-year. Contract and shipment rates on routes from Asia to Europe and to North America—which saw average rates drop 42 percent to $2,825 per container—contributed to the declines.
Both the Asia-Europe and Transpacific markets experienced significant pressure during the first quarter due to the weakened demand, driving an overall decrease of 9.4 percent in container volumes compared to the 2022 period.
Vincent Clerc, CEO of Maersk, said in a statement that the company is adjusting to a “radically changed business environment.”
The latest Drewry World Container Index (WCI) shows the rate of $1,763 per 40-foot container marks a 77 percent year-over-year across eight major East-West trade routes. The WCI is down 83 percent below the peak of $10,377 reached in September 2021.
Additionally, the maritime research consultancy’s Global Container Port Throughput Index shed light on the decline in volume, with throughput numbers coming in 3.2 percent lower in February than a year prior.
Ocean revenues took the biggest hit at Maersk, falling 37 percent year-over-year to $9.9 billion in the quarter from $15.6 billion. The company reported that the ocean contract negotiation season is proceeding in line with expectations. During the first quarter, Maersk carried 67 percent of its volumes under contracts, largely in line with the previous year.
The company’s growing logistics and services division performed better, with a 21 percent revenue bump to $3.5 billion from $2.9 billion in the year prior, but growth was buoyed by recent acquisitions including Pilot Freight Services, LF Logistics, Senator International and Martin Bencher Group. Organic revenue was 9 percent lower versus the first quarter of 2022, affected by lower overall volume and decreased air freight rate.
In Maersk’s terminals segment, revenue declined by 9.5 percent to $876 million from $1.1 billion. The revenue was largely impacted by lower volumes and storage income, both a factor of lower demand and less-congested ports.
Clerc said Maersk showed “a solid financial performance in a challenging market with lower demand caused by a continued destocking. Visibility remains low for the remainder of the year and moving through this market normalization, we remain focused on proactively managing costs.”
The average operated capacity of 4.2 million 20-foot equivalent units (TEU) across Maersk’s entire fleet decreased by 1.7 percent from 4.3 million TEU in the year prior. The current order book for carbon-neutral vessels totaled 19 at the end of the quarter, including one feeder vessel expected to be delivered in the fourth quarter. The fleet consisted of 318 owned and 373 chartered vessels, of which 447,000 TEU or 11 percent of the fleet were idle (57 vessels).
Maersk’s first quarter 2023 utilization rate was 88 percent of offered capacity, compared to 93 percent in the year prior.
Maersk has not changed its full-year guidance, still expecting 2023 underlying EBITDA of $8 billion to $11 billion, underlying EBIT of $2 billion to $5 billion and free cash flow of at least $2 billion.
Guidance continues to be based on the expectation of muted 2023 global GDP growth and that volume declines will stabilize by the end of the first half of the year “based on the expectation that inventory correction will be complete,” the company said in its quarterly report.
Maersk said it expects the first quarter to be its strongest of the year.
The Danish container shipping firm expects global container trade volumes to range between a 2.5 percent contraction from 2022 to a 0.5 percent expansion in the market. The company forecasts that the Maersk Line business to grow in line with the market.
Container prices have largely stabilized since March
Although the freefall in container prices persisted from summer 2022 through the end of the year, they have begun to stabilize in 2023. The composite index increased by 1 percent on a week-over-week basis as of Thursday, according to Drewry. And when compared to the first week of March, container prices have dropped just 5 percent.
On a historical basis, container prices are 34 percent lower than the 10-year average of $2,688, indicating a return to normal prices. But they’re still 24 percent higher than the average 2019 pre-pandemic rates of $1,420.
The average composite index for the year-to-date is $1,883 per 40-foot container, which is 30 percent lower than the 10-year average.
On a route-by-route basis, Shanghai to Rotterdam saw the biggest annual container price declines at 84 percent to $1,645 per container. The Shanghai-to-Genoa trade line saw the second-largest price collapse at 81 percent to $2,232, while the third-largest was seen on the Shanghai-to-Los Angeles route at 79 percent to $1,825. The costs on Shanghai-to-New York shipping lane fell 75 percent to $2,289 per container.
Drewry also expects month-over-month port throughput to jump 3.4 percent to 104.6 in March.