Copenhagen: A.P. Moller-Maersk A/S, a bellwether for global trade, is cutting at least 10,000 jobs to shield its profitability in a shipping market that it sees contracting somewhat less than previously forecast.
The personnel reductions prompted by lower freight rates and increased competition in marine transport, are under way, with 6,500 of those positions already eliminated, CEO Vincent Clerc said in an interview with Bloomberg TV’s Mark Cudmore and Tom MacKenzie.
“If you look at the order book and what is going to come over the next couple of years, I think we’re probably settling in for a very subdued and pressured environment for two to three years ahead,” Clerc said.
Maersk expects to save $600 million through the job cost measures, according to a statement on Friday. The Copenhagen-based company will also put its 2024 share buyback program under review and reduced its estimate for capital expenditure in 2023 and 2024.
Container lines are facing an abrupt drop in earnings after record profits in 2021 and 2022 when high demand for consumer goods during the pandemic, coupled with limited vessel supply, drove freight prices higher.
This year, global economic growth has lost steam and companies are working through existing inventories instead of transporting new goods to Europe and the US. At the same time, an oversupply of vessels is building up on the market.
Maersk’s earnings before interest, tax, depreciation and amortization fell more than 80 per cent to $1.88 billion in the third quarter, meeting analyst estimates.
Global container trade will probably decline 0.5 per cent to 2 per cent this year, Maersk said, compared with its previous prediction of a contraction of 1 per cent to 4 per cent.
Its reduced capital expenditure plans and review of its planned share buybacks “will likely be taken negatively,” analysts at Citigroup led by Sathish Sivakumar said in a note to clients. Analysts are likely to trim their full-year earnings estimates for the company by mid-single digits, they added.
The downturn in the industry is set to be deeper and longer than the market expects, Goldman Sachs analysts warned in a research note last month, repeating a recommendation to sell Maersk stock. According to Bloomberg Intelligence, Maersk may have to wait until 2025 before earnings will grow, amid weak rates.
Maersk, which transports about one-sixth of the world’s containers, prepared for things to sour, seeking to lock in many of its big customers on long-term contracts back when rates where higher to ease the impact of freight-rate volatility. The Danish company is also spreading its focus to cover land-based container logistics, where profit margins traditionally have been higher than at sea.