Maersk Falls as Global Shipping Boom Finally Starts to Cool

By Geoffrey Smith 

Investing.com -- AP Moeller - Maersk (CSE:MAERSKa) stock fell over 5% in early trade on Wednesday after the world's largest container shipping company warned that its main shipping business is slowing sharply as the pandemic boom finally fades.

"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," Maersk said in a statement, confirming trends that have been evident in most freight indices through the summer. 

The Baltic Dry Index, which had staged something of a rally early in the year as the lockdown of Shanghai and other ports in China once again disrupted global supply chains, is now down by over half since May and by over 75% from its 2021 peak.

Maersk's warning reflects an inevitable slowdown in global trade and shipping after the pandemic triggered a massive structural shift in global consumer spending. The upsurge in demand for durable consumer goods, which are in large measure produced in Asia but consumed in North America and Europe, put huge premiums on containers and shipping capacity that have only recently started to unwind.

However, the slowdown is now being amplified by a broad cooling across advanced economies, as sky-high energy prices caused by the fallout from Russia's invasion of Ukraine hurt global manufacturers and squeeze consumer spending power. The World Trade Organization expects global trade growth to slow to only 1% next year from around 3.5% in 2022.

Against that backdrop, the Danish group cut its forecasts for global container demand this year and now sees a drop of between 2% and 4%, having previously expected it to stay unchanged from 2021 levels. Coming so late in the year, that implies a disproportionately sharp drop in demand in the final part of 2022. 

The warning overshadowed what appears likely to be a last hurrah in the current economic cycle for a shipping business that has been one of the world's standout money-spinners for the last two years. Earnings and revenue again beat the company's and the market's forecasts in the third quarter, with revenue rising 37% on the year to $22.8 billion, and earnings before interest and taxes rising 61% to $9.5 billion, and free cash flow rising 47% to $7.8 billion.

As its core "Ocean" division enters a cyclical slowdown, Maersk is increasingly diverting resources to growing its land-based logistics arm. This enjoyed solid growth in the third quarter, with revenue rising by over 60% to top $4 billion for the first time, thanks to the consolidation of newly-acquired LF Logistics. 

By 05:10 ET (09:10 GMT), Maersk stock was down 5.6% in Copenhagen.