Maersk lifts profit forecast for third time this year

Maersk lifts profit forecast for third time this year

One of the biggest players in the container shipping industry, Maersk, recently lifted its annual profit forecasts for the third time this year.

It raised its full-year forecast for operating profits from US $24 billion to US $31 billion.

The entire industry will make an operating profit of $270 billion this year, more than 10 times greater than the profit of US $26 billion in 2020, according to independent maritime research consultancy Drewry.

The industry has enjoyed a boom over the past two years due to the rise in demand for masks and other personal protective equipment, as well as consumer spending during the COVID-19 epidemic.

The industry is expected to be coming down from its highs because of the effects of the pandemic.

Even the typically busy August to October period when businesses move goods for the year-end retail season seems to have weakened.

The industry is expecting a more moderate peak season based on how China's zero-COVID policy plays out and how the energy crisis evolves, said John Pearson, DHL's chief executive.

Mr Raymon Krishnan, president of Singapore's Logistics and Supply Chain Management Society, noted that Trans-Pacific eastbound rates have fallen below US $5,000 per container. A container last year cost about US $15,000 to US $20,000.

There are even signs that it is going to reach the US $2,000 per TEU mark, which used to be what we used to see before COVID, he told CNA.

The Drewry consultancy said that the spot rate for the benchmark route from Asia to the US fell to slightly less than US $5,000 per 40 foot container, marking the first time that the index has fallen below that level since December 2020.

The rate is still double that of pre-pandemic levels.

Shipping costs are a key factor in the rise of inflation. When freight rates rise, prices for goods do, although the pass-through to inflation from such rates is less than those associated with food or fuel costs.

George Griffiths, managing editor of Global Container Freight at S&P Global Commodity Insights, said that the world is seeing an increase in the cost of living.

He said that wages are not rising at the same rate as the costs of food, housing and energy.

This is a genuine concern for the market, but it's a free market, and the people who own and operate the ships are perfectly at will to charge whatever they like, whatever they see fit, he told CNA.

For now, shipping demand and prices mean costs should come down and supply chain logjams should be lessened.

Maersk said that a gradual normalisation of freight rates will likely happen in the last quarter of next year, while the Logistics and Supply Chain Management Society expects significant downward pricing to start earlier in the first quarter of 2023.

The container shipping industry is bracing for an impending lull, but it is confident that the strong earnings from the past two years can cushion some of the impact.

The industry is looking for something to replace the boom during COVID 19 and third party logistics companies and shippers are looking at sustainability as a new big thing, said Mr Raymon.

Things are rationalising, things are slowing down.