Shipping giant Maersk, which has the status of a kind of barometer of the state of affairs in the world trade system, is convinced that currently there are no signs of a recession scenario in the global economy since the level of demand for services related to freight transportation continues to remain at high levels.
During a conversation with media representatives, the chief executive officer of the specified company, Vincent Clerc, shared his opinion on the condition of the international economy on Wednesday, August 7. Also, he drew attention to the fact in the context of the relevant reasoning that over the past two years, the container transportation market has been experiencing a situation characterized by a high level of stability amid fears that a potential recession scenario will become an objective fact of material reality. Separately, Vincent Clerc underlined that the demand for the specified transportation is a good indicator in terms of reflecting underlying macroeconomic stability.
The head of Maersk, during a conversation with media representatives, also said that inventories in the United States are currently higher than they were at the beginning of the current year, but at the same time, the corresponding indicator is not at the level that is a cause for concern or signals the maximum probability of a significant slowdown in the foreseeable future. It is worth clarifying that in this case, it means goods stored before delivery or processing. At the same time, he noted some unpredictability numbers for companies replenishing stocks.
Vincent Clerc says his company is looking also at purchase orders from many retailers and consumer brands that need to import goods into the United States over the coming month of demand. According to him, demand in the mentioned sector continues to be high. He says that the data and indicators that the shipping giant is observing signal a good level of confidence that the current figure of consumption in the United States will continue.
It is worth noting that last week, concerns about the risk of a recession scenario materializing in the United States economic system sharply strengthened. The corresponding sentiments, containing anxiety about the prospects of the foreseeable future, began to scale after that. as data were published on a weaker-than-expected labor market condition and an increase in the unemployment rate to 4.3% in July, which is a more pessimistic state of affairs compared with preliminary forecasts. Concerns also began to circulate that the Federal Reserve is probably not acting fast enough to prevent the aggravation of already existing negative circumstances in the context of the prospects for the dynamic of the US economy.
According to the United States Census Bureau, retail trade inventories in the country totaled $793.86 billion in May. This figure showed an increase of 5.33% year-on-year. It is worth noting that retail trade inventories are a measure of unwanted build.
The report, which was published this week by the Container XChange leasing platform, contains information that inventories are currently exceeding demand. According to the experts of the mentioned company, the specified state of affairs means a less prosperous time in the coming months for container traders, the logistics market, and retailers who stockpiled.
At the same time, Maersk was surprised by the sustainability of container traffic volumes over the past few years. The Company is convinced that the corresponding situation will continue in the coming quarters. Also, the shipping giant has not seen any signs that the current vector of the dynamic of the global economy is heading toward recessionary territory.
The volume of container traffic has grown based on the upward dynamic of Chinese exports. Vincent Clerc says that the global share of containers coming from an Asian country or heading to this state has increased.
It is worth noting that in 2022 Maersk held a more pessimistic vision regarding the prospects of the international economic system. The corresponding point of view was based on attention to such negative circumstances of the global space as inflation, the risk of recession at the international level, and the energy crisis in Europe. Against the background of the cumulative effect of the mentioned factors, freight rates decreased last year. As a result of the impact of the specified circumstances, a drop in Maersk’s profits was recorded.
This year, shipping companies had to divert the routes of trade around the southern coast of Africa. The reason for these changes was the increase in geopolitical tensions in the Red Sea. Against the background of new directions of trade routes, the journey time of ships has increased and the capacity of the global system has taken out.
Vincent Clerc expects that diversions that have been repeatedly committed in the Red Sea will continue at least until the end of the current year. According to him, against the background of this challenge, it is necessary to increase the capacity and number of ships to move global trade around the world. He noted that due to the situation in the Red Sea, a certain shortage was formed in the second and third quarters. In this case, it implies a shortage of capacities that ensure the functioning of the global trading system. In his opinion, the current situation provides for higher costs in the short term. Maersk has already had to incur significant expenditures, both because of the need for more ships and in the context of the necessity to increase the number of containers.
Vincent Clerc admits the possibility that his company’s base costs will rise. According to him, the firm will pass part of the costs to customers. He also noted that the implementation of a negative scenario provides for an increase in the cost of routes from Asia to Europe or the east coast of the United States will increase by 20-30%.
Vincent Clerc says that the impact of capacity constraints in the short term has become a factor of positive impact on the margin of the company he heads and has generated three profit upgrades in recent months.
On Wednesday, Maersk reported that its underlying profit for the second quarter of the current year was $623 million. It is worth noting that for the same period in 2023, the corresponding figure was fixed at $1.346 billion. This is a significant decrease in underlying profit. The shipping giant’s revenue for the second quarter of 2024 was fixed at $12.77 billion. Over the same period last year, this figure reached $12.99 billion.
At the same time, the second quarter of 2024 did not become a period of total downturn for the shipping giant in the context of comparison with previous results. For example, the ocean freight margins for the mentioned period turned out to be significantly higher than in the first quarter of the current year and the last three months of 2023. The margin before interest and taxes was 5.6%.
On Wednesday in London, the value of Maersk shares fell by 1.6%.
