Maersk, the world’s biggest shipping company, says it expects a “significant decline” in demand despite being a second-quarter profit prediction.
Maersk was affected by a “sharp drop in volumes” in the second quarter. Its revenues dropped by 6.5% from the same period last year as the global economy slowed down due to the coronavirus pandemic. However, Maersk increased its full-year guidance on Wednesday.
The world's biggest shipping company had a 25% increase in second-quarter EBITDA (earnings before interest, tax, depreciation and amortization) to $1.7 billion, surpassing the $1.575 expected by analysts in a Refinitiv poll.
The Danish company now predicts 2020 EBITDA of between $6 billion and $7 billion, an increase from initial guidance of $5.5 billion
The decline in revenue was caused by a 16% drop in the company’s Ocean division and 14% in gateway terminals, which Maersk said was “partially offset by increased freight rates and increased revenue per move in Terminals.”
“As a result of the lock-downs, closed borders and travel restrictions around the world, we experienced significant problems in relieving our seafarers when their contracts expired, a persistent issue of serious concern to us, which we are proactively addressing,” CEO Søren Skou said in the earnings report.
Cash return on invested capital (CROIC) rose by 3.6 percentage points to 12.5%, and Skou mentioned that the earnings report and balance sheet showed that Maesk was “well positioned to financially and strategically come out stronger of the crisis.”
Cancellation of trips
As early as February 2020, Maersk has canceled over 50 trips to and from Asia due to slow demand from the coronavirus outbreak.
According to Maersk, it had a “very weak” start to the year as the coronavirus outbreak has kept some factories in China closed and pulled down the demand for the transport of goods.
Since the extension of the Lunar New Year holiday due to the outbreak, the Danish ship operator has canceled over 50 trips to and from the region. It also expects shipping rates to decline as the demand continues to fall.
In an earnings call, Skou said: “We estimate factories in China are operating at 50% to 60% of capacity.” While the company expects production to be at 90% by the first week of March, Skou warned that “obviously there are still a lot of uncertainties.”
The United Nations Conference on Trade and Development pointed out that around 80% of world goods trade by volume is carried by sea and that China has seven of the world’s 10 busiest container ports. This means that the outbreak could have a critical impact on global shipping.
As a result, Maersk forecasts its earnings at around $5.5 billion for the year, which is about 5% below what analysts had been predicting.
Skou continued: “The coronavirus impacts all our businesses. We also have a terminals business in China, and a significant logistics and warehousing business. It’s not just ocean.”
He explained that the company expects exports from China to be “very weak” in February, “quite weak” in March, and “hopefully a strong rebound into April, May and June.” This is based on an “external consensus” that the virus will peak in the coming weeks.
