A warning from AP Moeller-Maersk sent ripples through the shipping industry Wednesday morning, resulting in a 5% drop in the shipping giant’s stock price through the early hours of trading, who’ve signaled more darker realities may lie ahead.
As discussed on More Than Shipping as it relates to container backup in the ports of Long Beach and Los Angeles, demand across all sectors has fallen in latter half of 2022, resulting in minimal product backups at U.S. ports. While a positive shift for some aspects of the supply chain, the sudden shift in demand has taken a toll on the container shipping industry.
“It is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion,” Maersk’s Wednesday statement read, confirming the trends observed by many supply chain experts that became self-evident through Q3 of 2022. According to Yahoo Finance, the Baltic Dry Index, which serves as a weathervane for general shipping market, is down more than 75% from its 2021 peak.
The 5% drop in stock price observed Wednesday morning marks a 38% drop from the stock’s record high on January 13th of this year – a substantial change for the shipping giant that currently accounts for 17% of the global market share.
There are many factors contributing to the current state of the shipping industry, but potentially the foremost indicator of recent moves in stock prices is the impending economic downturn. “With the war in Ukraine, an energy crisis in Europe, high inflation, and a looming global recession there are plenty of dark clouds on the horizon,” Maersk’s statement went on to say.
Maersk forecasts global container demoing will fall by 2-4% this year in light of the economic downturn that’s expected to persist into 2023. The shipping industry has been one of the most profitable sectors for several years throughout the pandemic, but that could be changing. While demand surged during the pandemic, so did freight rates which have remained high, but we may finally be feeling those prices level off.
While Maersk’s revenue is supposed to climb 37% this year, J.P. Morgan implied core earnings could drop upwards of 40% in the fourth quarter when compared to the third quarter. As container rates via sea are falling, Maersk has moved attention away from the cyclical ocean shipping slowdown to increase its presence in its growing land-based logistics arm. They recently acquired LF Logistics, which helped increase revenue by over 60% through this operation in the third quarter.