MAERSK EXPECTS LOGISTICS REVENUES TO EXCEED SHIPPING IN COMING YEARS

Maersk’s revenue in the most recent quarter grew 37% compared with the year-ago period to $22.8 billion.

A.P. Moller-Maersk A/S expects logistics revenue to surpass the ocean business by the middle of the decade as the container giant warns of “dark clouds on the horizon” for global shipping demand.

Maersk Chief Executive Søren Skou said in an earnings call Wednesday that the Denmark-based company, one of the world’s largest container lines by volume, is maintaining its focus on transforming from mostly an ocean shipping operator to becoming a global logistics juggernaut.

Mr. Skou said the strategy should help insulate Maersk from the boom-and-bust cycles of the container industry.

“Our strategy is not to gain market share in ocean,” Mr. Skou said. “It is to gain share in our customers’ wallet of logistics spend.”

Ocean carriers are facing a sharp reversal in fortunes. Demand for space on container ships during the Covid-19 pandemic drove hundreds of billions of dollars in profits for the world’s largest ocean carriers. This year, shipping volumes and rates are plunging as consumers pull back on spending amid rising inflation and a war in Ukraine that has triggered a global energy crisis.

Maersk’s revenue in the most recent quarter grew 37% compared with the year-ago period to $22.8 billion, thanks largely to higher contracted freight rates negotiated earlier in 2022 when demand for space was at a high. Net profit jumped to a record $8.9 billion from $5.4 billion in the year-ago quarter, the latest in a series of big earnings figures that have pumped billions of dollars of cash into the container lines.

Maersk officials say cargo volumes in the quarter fell 7.6%, including a 10% drop on the busiest trade routes between China and Western nations, and carriers have been pulling capacity from the market as freight rates have sagged.

“It is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion,” Mr. Skou said.

The average spot market cost of shipping a container from Asia to the U.S. West Coast during the last week of October was $2,494, according to online freight marketplace Freightos, down 85% from a year ago.

Mr. Skou’s outlook was one of the darkest so far in a container shipping sector that has seen trade volumes decline rapidly this fall.

Jeremy Nixon, CEO of Singapore-based container shipping line Ocean Network Express, said in a statement on Monday that strains in the global economy have “led to a sharp correction in spot market rates, due to overall demand dropping quicker than the market can adjust supply side capacity.”

“When the customers themselves suffer from the effects of economic decline, volume can’t be conjured out of the thin air.”— Søren Skou, CEO of Maersk

But Mr. Nixon said he expects the container shipping market to return to greater balance between supply and demand in the next quarter.

Maersk says it is somewhat insulated from the spot-market volatility because a large share of its business comes through long-term contracts.

Contract negotiations in the next year will be heavily influenced by spot rates, however, and won’t protect Maersk from a broader downturn in trade demand. “When the customers themselves suffer from the effects of economic decline, volume can’t be conjured out of the thin air,” Mr. Skou said.

He said the company is trying with its logistics investments “to break away from the cyclicality of the shipping industry and the commoditized nature of traditional container shipping. We remain convinced that creating closer relationships with customers and maintaining an intense focus on their needs is the way to do so.”

Maersk officials point out that importers and exporters spend eight to nine times more on domestic logistics, such as trucking, warehousing and delivery, than on international ocean freight.

The company has made a series of acquisitions in logistics and inland transport in recent years, capped by the $3.6 billion purchase completed in August of LF Logistics, the Hong Kong-based contract logistics arm of supply-chain giant Li & Fung

Maersk’s logistics revenues reached $4.2 billion in the most recent quarter, which included one month’s revenues from the LF Logistics acquisition. Ocean revenue in the same period surpassed $18 billion.

“We are well on the way towards a significant market position in the logistics industry,” Mr. Skou said. “And at some point in this decade, probably around the middle of the decade, we expect our logistics revenue to surpass that of ocean.”

Source: The Wall Street Journey