Maersk Cautiously Optimistic as It Plans Fleet Renewal Including Bio-LNG

 

Maersk provided investors with additional details on its outlook while reporting a better-than-expected second quarter and sounding optimistic while emphasizing continued market uncertainty. After starting 2024 with a cautious note, the second largest container shipper reports higher than expected volumes and rates led it to raise its forecast to an operating profit of between $3 and $5 billion for the year. It made $1.1 billion in the first half of 2024.

 Making the rounds through the major media outlets, CEO Vincent Clerc said the company had been surprised by the resilience of the container market moving from the pandemic to the decline in rates and volume in 2023, and now the disruptions in the Red Sea. He said the second quarter for Maersk was fueled by strong market demand and volume growth across all its segments and stabilization as the market absorbs the ongoing disruptions in the Red Sea region.

Maersk said profitability was building back in its ocean shipping operations largely driven by higher freight rates which helped them to achieve a 5.6 percent margin despite higher operating costs. The added distances of sailing around Africa drove fuel consumption and costs to an all-time high. Shippers Maersk also believes have accelerated their business fearing a range of issues from further disruptions to port congestion due to the impact on schedules. They also pointed to the potential for a trade war between the U.S. and China as the U.S. moves to raise tariffs and the further impact of the U.S. presidential election. 

Moving into the third quarter, Clerc said they would benefit from the full effect of the higher rates. With a significant contract business, he said the full rate impact was yet to come for Maersk.

“Our results this quarter confirm that performance in all our businesses is trending in the right direction. Market demand has been strong, and as we have all seen, the situation in the Red Sea remains entrenched, which leads to continued pressure on global supply chains. These conditions are now expected to continue for the remainder of the year,” said Clerc.

Speak on CNBC he said the company did not see signs of a potential U.S. recession, noting the strong growth in Chinese exports. He predicted that the global container market will grow between 4 and 6 percent up from their earlier force of 2.5 to 4.5 percent growth. However, Maersk is also uncertain if there will be a further rush to move Christmas merchandise or if shippers have already built inventories for the year-end sales. Clerc said he believes freight rates have peaked with the easing of congestion and new capacity into the segment. 

Maersk, unlike many other large carriers, has been slow on new orders with Alphaliner highlighting that five of the top 10 carriers now have larger orderbooks. CMA CGM is forecast by many to be set to surpass Maersk moving into the second position behind MSC Mediterranean Shipping. Maersk has also avoided the rush to the 24,000-plus TEU mega-ships.

Clerc said today however the company is set to accelerate a fleet renewal program. Maersk told investors it is increasing its capital forecast by $1 billion annually to $10 to $11 billion due to its continuous fleet renewal program.

While it is not finalized, the company said it is close to orders for 50 to 60 new containerships. Clerc however emphasized it is a fleet renewal saying the target is to execute with the existing fleet size of 4.1 to 4.3 million TEU. The company plans a renewal pace of 160,000 TEU annually and said it would have orders for 800,000 TEU this year for delivery in 2026 to 2030. They expect to build owned vessels with 300,000 TEU capacity and charter the additional 500,000 TEU of capacity.

The company has been adamant that its strategy for new orders was to only order new, owned vessels that come with a green fuel option. Clerc however admitted today that multiple fuel technologies are likely as the sector moves forward with Maersk saying “The exact split of propulsion technologies will be determined considering the future regulatory framework and green fuel supply.”

Maersk would not rule out orders for LNG-fueled ships and told investors it has commenced the work of securing offtake agreements for liquified bio-methane (bio-LNG). The company said its goal with the renewal program is to increase to 25 percent of its fleet equipped with dual-fuel engines.

Maersk has also raised its 2024 estimate saying it should provide at least $2 billion in free cash flow from its operations. While Clerc confirmed they had withdrawn from the bidding for DB Schenker, he said they continue to actively explore acquisitions for the land side of the business. The strategy remains a diversified logistics company balancing the ocean business with growth in the logistics sectors.