Maersk Pursues Cost Cutting and Layoffs Warnings of Challenges in 2024
Citing a “difficult market environment,” Maersk warned today of challenging times ahead for the container shipping industry while saying that it would accelerate its cost-cutting and layoffs to manage against what it warns could be a “dire situation in 2024.” The world’s second-largest carrier reported third quarter results in line with expectations and confirmed the low end of its forecast for 2023 while sounding significant cautions about the outlook resulting in a more than 15 percent decline in the value of its stock.
“Our industry is facing a new normal with subdued demand, prices back in line with historical levels, and inflationary pressure on our cost base,” Vincent Clerc, CEO of Maersk said describing market conditions. “Since the summer, we have seen overcapacity across most regions triggering price drops and no noticeable uptick in ship recycling or idling.”
The result was that the company reported the first financial loss from its shipping operations in years during the current quarter. Earnings before taxes and interest (EBIT) were down from the staggering $8.7 billion a year ago in the third quarter to a loss of $27 million from the company’s Ocean segment. Revenues from shipping were down dramatically from $18 billion in the year-ago quarter to $7.8 billion.
The other segments of the business did not perform better with the logistics and services operations seeing revenues down by a quarter also due to lower pricing, especially in air and haulage. They reported a smaller decline in revenues from the terminal operations. Overall, revenues were off by nearly half from $22.8 billion last year to $12.1 billion in the third quarter of 2023. The profit fell from nearly $9.5 billion last year to $538 million this year.
“Given the challenging times ahead, we accelerated several cost and cash containment measures to safeguard our financial performance,” Clerc said. He described pressures from lower freight rates and volumes as well as increased costs. He said in particular rate pressure was coming on the Asia to Europe, North America, and Latin America trades.
Maersk expects by the end of 2023 and early 2024 to have reduced headcount by 10 percent or approximately 10,000 employees worldwide as part of what Clerc called “rigorous cost containment measures.” The company has already reduced its workforce by 6,500 positions since the beginning of the year and over the coming months a further 2,500, and 1,000 more in 2024. Having started 2023 at around 110,000 employees he said the global workforce would be below 100,000. The company is increasing the cost of its restructuring to $350 million from a previous estimate of $150 million but expects all of its cost-containment efforts will bring down expenses by $600 million in 2024.
Maersk tempered its market forecast saying that it now sees container volume in 2023 between negative two percent and negative half a percent versus an earlier forecast of negative one to four percent. Describing the market to investors, Maersk said the negative revenue growth came from the retail and lifestyle sector, especially in North America, as well as automotive and technology.
Clerc however told investors the bigger challenges could be in 2024 noting that there was a “very uncertain training environment,” with significant risks ahead. He said the upcoming contract negotiations for long-term freight rates would be critical noting that Maersk has 68 percent of its volume under long-term contracts. He said if spot rates did not improve it could lead to “a pretty dire situation in 2024.”