By Dominic Chopping
A.P. Moller-Maersk said it will cut more than 10,000 jobs, saying the shipping industry is facing a “new normal” of subdued demand, lower freight rates and inflationary pressure.
The company now expects to report earnings for the full year at the lower end of its targeted ranges, it said.
“Since the summer, we have seen overcapacity across most regions triggering price drops and no noticeable uptick in ship recycling or idling,” Chief Executive Vincent Clerc said. “Given the challenging times ahead, we accelerated several cost and cash containment measures to safeguard our financial performance.”
The Danish shipping giant enjoyed bumper profits last year as a pandemic-driven surge in demand for goods coupled with supply-chain bottlenecks and port congestion drove freight rates sharply higher. But with the market normalizing this year, freight rates are now back down near 2019 levels.
Rates fell 58% on year, while volumes were 5% higher. Revenue in the company’s main shipping business fell 56% to $7.9 billion.
Maersk expects the market to remain volatile, with profitability increasingly tested by a continuing rise in industry capacity, prompting it to intensify its cost-cutting efforts and increase its existing restructuring program. The company now aims to cut its workforce below 100,000, from 110,000 at the start of the year. This will result in savings of $600 million next year and increased restructuring costs of $350 million, up from $150 million announced earlier this year, it said.
Given the uncertainty ahead, it will also cut capital expenditure this year and next while placing its share buyback program under review.
Maersk maintained its earnings outlook for the full year, though guided for the lower-end of its targeted ranges, as volumes rose and cost reductions helped improve results. Projections for freight demand this year were lifted, with the company saying it now expects global container volumes to decline between 2% and 0.5% from declines of 1% to 4% previously.
Quarterly net profit slumped to $521 million from $8.88 billion in the same period last year, while revenue fell by 47% to $12.13 billion. A FactSet consensus had seen net profit at $334 million on revenue of $12.66 billion.
Maersk expects full-year underlying earnings before interest, taxes, depreciation and amortization of $9.5 billion to $11 billion and underlying earnings before interest and tax of $3.5 billion to $5 billion, with the company guiding toward the lower-end of the range.
Write to Dominic Chopping at [email protected]
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