Maersk ups profit target by $2bn on Red Sea shipping woes
Copenhagen (AFP) – Danish shipping giant Maersk said Thursday it expects its underlying profit in 2024 to be $2 billion higher than its previous forecast as freight rates have increased amid the crisis in the Red Sea.
Issued on: 01/08/2024 -
Months of attacks by Yemen's Iran-backed Huthis have prompted some shipping companies to detour around southern Africa to avoid the Red Sea route -- which normally carries about 12 percent of global trade.
Maersk said in a statement that it was upgrading it's 2024 full-year guidance "due to the continued supply chain disruption caused by the situation in the Red Sea, which is now expected to continue at least until the end of 2024, coupled with robust container market demand."
The Danish company said it was now expecting its operating profit (earnings before interest, taxes, depreciation, and amortisation or EBITDA) to come in at between $9 and $11 billion for the full year.
Already in June, the shipping giant had upped its projected EBITDA by $3 billion to between $7 and $9 billion.
"Trading conditions remain subject to higher than normal volatility given the unpredictability of the Red Sea situation and the lack of clarity of supply and demand," it added.
Maersk, which is due to report its second quarter earnings on August 7, said that based on preliminary figured it would report a revenue $12.8 billon, and EBITDA of $2.1 billion for the second quarter.
The Yemeni rebels have been launching drones and missiles at shipping in the Red Sea since last November, saying they are acting in solidarity with Palestinians during the Gaza war.
In July, a deadly Huthi drone strike on Tel Aviv prompted Israeli air strikes on Yemen's port of Hodeida, which killed nine people and triggered a massive inferno.
© 2024 AFP
Maersk Raises 2024 Outlook for Thir Time Citing Demand and Uncertainty
After starting 2024 on a cautionary note, A.P. Moller – Maersk raised its 2024 forecast for the third time this year citing the positive effect on freight rates from the disruptions in the Red Sea and elsewhere. Long seen as a bellwether as the largest public company in the sector, Maersk became the latest to cite strong rates that were more than offsetting cost increases while also saying that it expects these conditions to last till 2025.
“Due to the continued supply chain disruption caused by the situation in the Red Sea, which is now expected to continue at least until the end of 2024, coupled with robust container market demand, APMM upgrades its full-year 2024 guidance,” the company said in a pre-market statement. It came a week before the company is scheduled to report quarterly results.
Maersk increased its full-year forecast by $2 billion or better than 20 percent on its previous EBITDA forecast (now $7 to $9 billion). EDIT profit was projected to increase by at least two-thirds or as much as double (now $1 to $3 billion). The company said free cash flow from operations will also double to at least $2 billion this year.
These numbers represent a strong change from late in 2023 and early 2024 when the container sector was citing a collapse in rates warning that the industry was likely to move to financial losses. Maersk and its peers were all citing weak demand and falling rates and even after the Red Sea diversions began in 2024 said costs were skyrocketing due to increases for fuel and longer distances.
Maersk also reported unaudited preliminary figures for the second quarter. Revenues are reported up nearly four percent for the company versus the first quarter to $12.8 billion, while profitability is dramatically improved over the first quarter. Maersk said EBITDA will be at $2.1 billion which is up more than 30 percent versus the first quarter of 2024. The results, however, are still significantly behind 2023 when the company reported a profit of $2.9 billion (EBITDA) while revenues will be nearly flat versus last year’s $13 billion in Q2.
Maersk, however, warns investors, “Trading conditions remain subject to higher than normal volatility given the unpredictability of the Red Sea situation and the lack of clarity of supply and demand in Q4.”
While the situation in the Red Sea appears to be calmer – there has not been an attack in over a week – none of the major shipping companies expect to resume their normal routing in the near term. With tensions high in the Middle East, safety remains the primary concern. However, other threats are looming that could further disrupt the industry including the potential for a dockworkers strike on Canada’s West Coast in August and the U.S. East Coast in October.
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