They Know: Shipping Giant Maersk Says Global Demand Improving More Than Expected
Demand for shipping is recovering faster than expected, according to Copenhagen-based container logistics giant Maersk, which handles about 20 percent of the world’s shipping containers.
The market for global containers fell 4.7 percent in the first quarter of 2020 due to the coronavirus pandemic and 10 percent in the second quarter, Barrons reported.
Despite the decline in demand, spot container freight rates increased in recent months, according to Fitch Ratings. As a result, global shipping companies’ financial performance has been improving.
Maersk expects to make a profit in the third quarter of 2020 of $2.4 billion, adjusted before costs — up from $1.7 billion in the same period in 2019.
It announced that it will cut about 2,000 jobs — more than 2 percent of the company’s workforce.
Maersk said it expected adjusted earnings for 2020 to be $7.5-to-$8 billion, up from its $6-to-$7 billion estimate in August.
Freight rates have been going up since June 2020 driven by re-stocking, increased demand for personal protective equipment, and inventory growth ahead of the holiday season to cover potential disruptions. Rates accelerated in August as demand improved and reached record levels in October.
The three largest shipping companies — Maersk, CMA CGM and Hapag Lloyd — could have their most profitable year in 2020, Fitch reported.
In September, Maersk joined the U.N. Secretary-General in asking governments to resolve a labor crisis resulting from about 400,000 workers stranded on ships. To limit the spread of coronavirus, countries around the world blocked or limited crew swaps on ships. Consumer brands including Unilever, Procter & Gamble, Mondelez, and Heineken say the crisis could disrupt global supply chains. Read: profits.
The global container shipping industry has consolidated in recent years. The three largest alliances now account for about 80 percent of the global market, Fitch reported.
The shipping industry could still face a potential decline in demand due to U.S.-China trade tensions and supply-chain localization, growing ecommerce that often uses air transportation, weak global economic conditions and resistance to increased contracted freight rates.
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Shipping companies are overwhelmingly non-U.S. entities that pay little or no U.S. tax, Freightwaves reported:
“The federal government’s use of debt to subsidize consumer spending is indirectly subsidizing earnings of transport companies (including non-U.S. companies).
“The outcome of the U.S. election will steer stimulus spending, energy policy, trade relations, geopolitics and environmental regulation — and consequently, ocean freight rates — for years to come.”
Sarah Bianchi, an Evercore ISI political policy analyst, said “We believe Democrats would pass a massive fiscal stimulus in response to covid-19. This is likely to mark an important contrast to what a Republican administration would pass in 2021.”