Maersk sees box rates plagued by overcapacity, cuts jobs to reduce costs

A.P. Moller-Maersk is seeing a prolonged pressure on freight rates from severe overcapacity and has embarked on 10,000 job cuts to protect its profitability, the Danish container line said Nov. 3 while reporting much weaker third-quarter results.

In its latest quarterly report, Maersk said market conditions are "challenging" amid soft demand and large newbuild deliveries and the company has to reduce expenses and save cash via restructuring, among other measures.

"Our industry is facing a new normal with subdued demand, prices back in line with historical levels and inflationary pressure on our cost base," CEO Vincent Clerc said in the report.

"Since the summer, we have seen overcapacity across most regions triggering price drops and no noticeable uptick in ship recycling or idling.

"Given the challenging times ahead, we accelerated several cost and cash containment measures to safeguard our financial performance."

The monthly average of Platts Container Index, a weighted average of spot rate assessments on key routes, fell from $1,069.93/FEU in August to $770.72/FEU in October, according to S&P global Commodity Insights data. This was the lowest monthly reading since Platts started to publish the index in 2017.

With macroeconomic headwinds still strong despite stronger-than-expected US growth, Maersk expects global container volume to shrink by 0.5% to 2% this year, compared with a contraction between 1% and 4% in its last forecast.

Meanwhile, trading fleet capacity is rising amid the increasing number of newbuilds hitting the waters, limited scrapping and reduced congestion, according to Maersk.

Consultancy Maritime Strategies International has forecast newbuild deliveries to increase from 606,100 TEU in Q3 to 837,600 TEU in Q4, 781,600 TEU in Q1 2024 and 942,300 TEU in Q2.

Cost reduction

As part of its efforts to protect its bottom line, Maersk said its global headcount had fallen from 110,000 in early 2023 to 103,500 currently. Another 2,500 jobs are set to go by the end of this year and 1,000 in 2024.

Maersk expects the job cuts to contribute to a total restructuring charge of $350 million but cutting its expenses by $600 million for next year.

Moreover, the company's guidance for capital expenditures is now at around $8 billion for 2022-23 versus $9 billion-$10 billion previously, and $8 billion-$9-billion for 2023-24 versus $10 billion-$11 billion previously.

In a conference call, Clerc said Maersk will be "taking a pause" from ordering more vessels before newbuild prices fall from the currently high level even as new capacity is essential for its decarbonization ambition.

Maersk operates a fleet of nearly 700 ships generally running on fossil fuels, and the company has launched newbuild and retrofit projects to add at least 36 "green" methanol-capable vessels to its fleet by the end of 2027. This is to help Maersk achieve its goal of halving greenhouse gas emissions per transported container from 2020 levels by 2030.

"The longer we take the pause...the more we will have to look at it at some point" on how the company progresses with the energy transition, Clerc said. "But for the time being, this is something we can perfectly manage for quite a while."

Slump in profit

Maersk reported its loaded seaborne volumes increased by 5% year on year to almost 3.2 million FEU in Q3, with higher demand on the routes from Asia to Europe, North and Latin America, among other markets. But its average rate more than halved to $2,095/FEU from $5,046/FEU.

The company's bunker consumption decreased to 2.5 million mt from 2.7 million, with a smaller operated fleet. Average bunker cost dropped to $593/mt from $895/mt.

Maersk's net profit tumbled to $521 million in Q3 from $8.9 billion in the same period last year, while revenue fell to $12.1 billion from $22.8 billion.

The company maintained its full-year guidance for EBITDA at $9.5 billion-$11 billion but now expects results toward the lower end.