Shipping and logistics giant Maersk said reduced demand for freight will see rates fall throughout the year as it reported plummeting profits.
Profits at AP Moller-Maersk were slashed in the first quarter of 2023, the company reported, with its earnings before taxes coming in at $4bn, less than half of 2022’s fourth quarter $9.1bn earnings.
Maersk said the fall in revenue was due to the “normalisation” of global demand and supply, which reflect “inventory corrections” made in Western economies as firms work through overstock issues following the pandemic.
As a result, there has been a decrease in demand for shipping which has pushed down both volumes of freight and rates.
CEO Vincent Clerc added Maersk was currently working through “a challenging market with lower demand caused by a continued destocking”. He added that “visibility remains low for the remainder of the year”.
Clerc explained: “We remain focused on proactively managing costs. As we adjust to a radically changed business environment, we continue to support our customers in addressing their supply chain challenges.”
Continued “destocking”, particularly in Europe and North America, was the primary driver of rate reduction, but the easing of port congestion and “concerns over global financial stability” also contributed to a “weaker” economic environment.
In the freight forwarder’s first quarter report, it noted: “By mid-2022, when both goods demand and port congestion started to normalise, recession fears emerged, leaving many businesses with the impression of having overstocked compared to expected sales. The combination of a weak consumer demand outlook with elevated inventories to sales ratios put trade volumes under pressure.”
This drove “negative container demand” for the first quarter, it added, with imports into Europe and North America being particularly weak. Meanwhile, fleets in other freight forwarders were growing, as the “increasing stream” of vessel deliveries failed to be offset by “limited scrapping activity”.
The easing of supply chain bottlenecks and weaker demand is exacerbating the issue, as shipping capacity continues to come back onto the market, the report explained.
These factors meant the gap between supply and demand will continue to widen, it added.
Maersk said it would be “difficult to predict” when volumes would improve. However, it remained optimistic volumes would “gradually pick up” in the second half of 2023.
☛ Want to stay up to date with the news? Sign up to our daily bulletin.