Biggest Shipping Companies Signal Global Trade Slowdown

Date: Monday, February 13, 2023
Source: Wall Street Journal

A Danish shipping giant on Wednesday became the latest company to showcase how global trade has slowed through the Covid-19 pandemic.

A.P. Moller-Maersk A/S, one of the world’s largest ocean freight companies, said its earnings could plunge nearly 80% this year amid weakening demand to ship containers.

Ocean liners posted record earnings as consumers stayed inside and spent money on home improvements, furniture and other goods. That prompted large importers such as Walmart Inc. WMT and Inc. to step up orders from suppliers and for container shipments to move merchandise. As supply-chain bottlenecks persisted and inbound goods swamped American ports, prices surged to move freight.

But fortunes have changed as some supply-chain pressures have eased and consumers have shifted their spending amid high inflation. Retailers and other importers cut orders to help adjust bloated inventories and tapered their demand for containers.

Average freight rates for Maersk fell 3.5% and volumes fell 14% in the December quarter from the prior-year period.

Spot rates are down 90% across the main shipping routes across the Pacific and from Asia to Europe since the height of the pandemic in 2021.

“It’s a different picture now,” Maersk Chief Executive Vincent Clerc, who assumed the post at the start of the year, said in an interview. “We’ve been seeing demand falling from both the U.S. and Europe, and it’s a pretty sharp correction.”

Maritime shipping companies aren’t alone facing a tough 2023.

United Parcel Service Inc. said in January that it expects a slowdown in global delivery volumes and that its revenue could decline for the first time since 2009.

“We expect 2023 to be a bumpy year,” said Brian Newman, chief financial officer at UPS, citing rising interest rates, high inflation, Russia’s war in Ukraine, Covid-19 disruptions in China and labor negotiations in the U.S.

UPS rival FedEx Corp. said in December that that revenue slipped 3% and earnings fell by nearly a quarter in the three months ended Nov. 30 from the prior-year period. FedEx said the average number of packages it handled daily fell 10.2%.

Freight broker C.H. Robinson Worldwide Inc. last week guided weaker earnings in 2023 and outlined new cost-cutting measures as it deals with falling prices for ground transportation.

Container import volumes into major U.S. ports are projected to be down about 26% this month compared with last year, and reach the lowest level since May 2020, according to an analysis released by the National Retail Federation and Hackett Associates. The National Retail Federation said volumes will likely stay weak through May.

Maersk said that global ocean-container demand this year could fall as much as 2.5% from 2022. To help manage volatility in the ocean-freight market, the company has been expanding its presence in logistics, working to improve service levels and land more spending from its top customers.

There are some signs that the decline in shipping volumes in the U.S. is leveling off. U.S. container import volumes in January were up 7.2% from December, and just 0.3% behind the January 2019 prepandemic level, according to the trade intelligence database owned by supply-chain software company Descartes Systems Group Inc.

In the latest quarter, Maersk’s profit fell 19% to $4.95 billion. Revenue fell 3.7% to $17.82 billion. Both metrics came in below the consensus forecast from analysts.

Maersk said it expects full-year underlying earnings of $8 billion to $11 billion, a sharp correction from the nearly $37 billion total reported last year.

“The further away you get from what is considered normal, the more you have to plunge to get to where you stand normally,” Mr. Clerc said.

Maersk also said it is boosting its annual per-share dividend by 72%. Its shares in Copenhagen closed Wednesday trading down nearly 1%.

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