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Maersk to Cut Services as It Battles Shipping Glut

Maersk to Cut Services as It Battles Shipping Glut
Costas Paris and Ian Walker May 17, 2018

The container operator’s first-quarter loss widened amid falling freight rates and rising trade risks and fuel costs

A.P. Moller-Maersk A/S said it would cut back on capacity to combat falling freight rates and rising fuel costs, after the Danish shipping giant reported a weak first quarter that sent its shares down about 8%.

The world’s biggest container operator said its underlying loss widened to $239 million from a loss of $139 million a year earlier, with Chief Executive Soren Skou blaming rampant overcapacity as the main culprit and warning that a trade war between the U.S. and China would dash any hopes of a recovery in the shipping industry after a long down cycle.

“In the short term we will be closing down some services,” Mr. Skou said in an interview. “Overcapacity is the biggest defect.”

Maersk shares were down 7.9% to 9,350 Danish kroner (about $1,480) on the Copenhagen Stock Exchange.

Maersk reported a net profit of $2.75 billion, compared with a profit of $245 million in the same period last year, but the gain came from the sale of two units, Maersk Oil and Maersk Tankers.

Mr. Skou said higher fuel prices had added $70 to the cost of shipping a container from Asia to Europe and across the Pacific. Maersk currently moves more than 4 million containers, or 19% of global capacity.

Freight rates between Asia and Europe hover around $780 per box, about half the $1,500 break-even level.

Maersk reiterated previous guidance that it expects 2018 underlying profit to be above the 2017 figure of $356 million, but Mr. Skou said that depends on growing geopolitical risks.

“A trade war between the U.S. and China would be very, very bad,” he said, adding that new U.S. sanctions on Iran are “a driver” for rising oil prices.

“Costs are rising overall and becoming inflationary. That’s not what we are used to,” Mr. Skou said.

He said Maersk leases or charters around 400 ships from a total of 750 in operation and that a number of them would be returned to their owners.

Maersk bought German competitor Hamburg Süd for $4 billion last year, which expanded its network by around 30%, while cargo volumes have grown by 24%.

Mr. Skou said Maersk would stop moving cargo to and from Iran, fearing repercussions from Washington.

“No shipping line that operates globally will be able to do business in Iran if the sanctions come to full force the way they intend to,” he said.

Container ships move the vast majority of manufactured goods and Maersk’s performance is seen as a barometer of the health of global trade.