Supply chain congestion will continue to hamper global shipping as Maersk noted softening demand and weaker consumer sentiment in the second quarter.
Maersk on Wednesday cited inflation, higher energy prices and geopolitical uncertainty in saying its container demand outlook is now expected to come in at the lower end of its 2022 estimate in the range of negative 1 percent to 1 percent growth.
The Copenhagen-based ocean carrier said its ocean business, its largest by revenue, saw a 7.4 percent decline in volume and a softening of rates in the spot market. Higher freight rates, however, helped bring the company’s container business revenue to $17.4 billion in the second quarter, a 52 percent increase from a year ago.
New pockets of congestion have created new headwinds to smoothing out global transportation systems.
“We had expected the congestion to ease by mid- this year as demand would moderate,” Maersk CEO Soren Skou told analysts Wednesday, adding that has not been the case with import levels remaining high in the U.S.
The CEO noted the trend in congestion moving away from the West Coast and over to the East Coast and, in some cases, Europe. The issue now is containers sitting too long at the terminals, Skou said.
He pointed to the Port of Los Angeles as an example, with some 8,500 containers waiting to be loaded onto rail on Tuesday at the Maersk terminal. The total reflects three to four times what was typically sitting pre-pandemic.
Maersk has aimed to stop the trend of its terminals from becoming storage centers with a policy announced in May to move containers sitting for more than 14 days off the terminals and into off-dock yards to free up space. On Monday, the company said it was changing the policy to apply to containers sitting for nine days or more at its Los Angeles/Long Beach and Newark/Elizabeth terminal operations, citing “excessive” dwell times.
“The picture means that a quick resolution of global supply chain issues is increasingly unlikely, but we do expect that we will see a gradual normalization from the fourth quarter towards the end of the year as headwinds keep demand down and labor markets become less tight,” Skou said.
Even with market headwinds, Maersk continues to notch record quarters as the company’s logistics business balloons. The second quarter marked the 15th straight period of earnings growth, driven across all aspects of the business.
Maersk’s revenue in the quarter spiked 52 percent from the year-ago period to total $21.7 billion in the second quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $10.3 billion, up from $5.1 billion a year earlier.
The company in more recent years has attempted to diversify its business from simply offering container services and into a broader portfolio for its shippers. That includes logistics, which generated revenue of $3.5 billion in the quarter, up 61 percent.
“Growth in logistics is the single-biggest opportunity for Maersk in this decade,” Skou said. “This means that at some point in this decade, we will have a bigger business in logistics than we have in ocean today.”
Maersk closed on its purchases of transportation and logistics firm Pilot Freight Services and air and sea freight company Senator International during the quarter.
Skou said Pilot gives the company a bigger footprint in transportation and business-to-consumer delivery in the U.S., while Senator expands Maersk into global air freight.
The company is also in the midst of closing on its acquisition of contract logistics and freight management company LF Logistics, which is expected to occur sometime in the current quarter.
Skou said the company looks at acquisitions as a way to expand its portfolio and is a way of “supercharging” the growth of companies it buys. Moving forward, potential targets will be “more focused” and “address the lack of capabilities we have,” Skou said.
“As we gain scale in logistics, we deepen our partnership with our customers and we are moving from a transactional ocean relationship to a strategic partnership, a more sticky relationship if you will,” Skou said. “And we increase our share of our customers’ total logistics expense, which creates a very strong platform for future growth.”