France economy

Maersk warns of falling shipping demand amid global recession

The world has only a few giant shipping companies, and they touch every aspect of international trade on a daily basis, so they are attuned to the health of the global economy. In other words, when the world sneezes, shipping companies like Maersk catch a cold.

Maersk has a huge position in global trade, handling 17% of international shipments and transporting goods for major consumer goods companies including Unilever and Walmart. And it shows over time.

Trade demand is falling rapidly in the latest sign of a coming global recession, warns Maersk, one of the big four shipping companies that control nearly 60% of the market.

Global shipping had a bumper year in 2021, as demand for international goods rebounded from the early days of the pandemic, and global trade hit a record $28.5 trillion, a 25% jump from to 2020 levels and 19% higher than before the pandemic.

But demand for global trade is now entering a period of decline that could last into next year, according to Maersk, the world’s second-largest container shipping group.

The Danish company beat expectations for the third quarter, according to its earnings report on Wednesday, but also warned that global container demand is on track to fall 2% to 4% in 2022, lowering its earlier forecast of plus or minus 1.% growth as stronger headwinds begin to cloud the economic picture through 2023.

“It’s clear that freight rates peaked and started to normalize in the quarter, driven by both lower demand and easing supply chain congestion,” he said. Maersk CEO Søren Skou said in a statement accompanying the report.

“With war in Ukraine, an energy crisis in Europe, high inflation and a looming global recession, there are many dark clouds looming on the horizon. This weighs on the purchasing power of consumers, which has an impact on the global demand for transport and logistics.

Flashing signals

Skou said global trade was showing signs of “retreating” amid a darkening global macroeconomic outlook in an interview with Bloomberg. Wednesday, adding that a recession was “certainly” on the way in Europe with the United States “potentially” right behind.

International organisations, including the OECD and the World Bank, have intensified their warnings in recent weeks that a global recession is on the way, while several banks have declared one essentially set in stone in Europe due to the energy crisis. continent and exposure to the Ukrainian War.

Despite global economic uncertainty, Maersk still managed to beat Wall Street forecasts by posting a profit of $10.9 billion last quarter, up from projections of $9.8 billion. But the months and year ahead are likely to be a “more volatile business environment” for global trade, according to Skou, as a global recession hits demand for international transport and logistics operators like Maersk, preparing for a decline in profits in the near future.

“On the one hand, we have never had such a strong financial result, but every indicator we look at is flashing dark red. Clearly, we expect a downturn; we expect lower earnings going forward,” Skou told the FinancialTimes Wednesday, adding that the company is ready to idle ships if necessary in the event of a slowdown.

After reaching record volumes last year, global trade has started to level off in recent months. International merchandise trade has already slowed significantly in the second quarter of this year, according to the World Trade Organization’s Merchandise Trade Barometer, a benchmark that highlights the trajectory of global trade. The WTO expected world trade to remain “weak” for the rest of 2022 in its latest August forecast.

Some shipping companies, including Italy’s MSC and France’s CMA CGM, have placed several orders for new ships during the recent industry boom, but in its talks with the FT, Skou said Maersk has ordered relatively few new ships.

Although it hasn’t bought many new ships, Maersk has embarked on a shopping spree with its big earnings from last year, making a bigger bet on inland logistics services, including the acquisition of two new e-commerce companies in 2021 – one based in the US and one in Europe – to help boost ground shipping from factories and warehouses.

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