Strong Market Leads Maersk to Double Earnings Forecast
The boom in the shipping industry and the expectations for strong demand to continue through 2021 are driving the major carriers’ earnings to new highs. A.P. Moller – Maersk, the public parent company of the world’s largest container shipping company, raised its guidance to investors forecasting that its earnings and cash flow will more than double versus previous guidance for 2021.
“Given the result in Q1 2021, and the exceptional market situation now expected to continue well into the fourth quarter of 2021, the full-year guidance for 2021 has been revised upwards,” the company wrote in a statement to the financial community. They reported that ocean volumes increased by 5.7 percent during the first quarter of 2021, with a dramatic 35 percent improvement in the average freight rates compared to the previous year.
Maersk said that the strong performance is mainly driven by the continuation of the exceptional market situation with surging demand leading to bottlenecks in the supply chain and equipment (containers) shortage. Maersk revised its forecast for global market growth in 2021 nearly doubling it to five to seven percent from the previous three to five percent forecast. They said the revision is driven by the export volumes out of China to the U.S.
A.P. Moller – Maersk said based on the “exceptional market situation” it is doubling its forecast for earnings before interest and taxes to reach $9 to $11 billion versus the previous forecast of $4.3 to $6.3 billion for 2021. The forecast for free cash generated by the business is also being doubled to $7 billion in 2021.
The strong market demand, however, is also contributing to increased capital expenses, which will more than offset by the strong performance. Maersk expects increased expenses as it works to provide additional containers “to relieve the current bottlenecks and improve service reliability,” in its ocean transport business, as well as due to costs associated with organic growth for its logistics and services business segment.
They cautioned that they are experiencing higher than normal volatility in the markets and that the current disruptions in the supply chains and equipment shortages are impacting the short-term container freight rates.
One of the most significant disruptions to the market was the recent blockage in the Suez Canal, which caused analysts to speculate on the possible negative impact on shipping companies. Speaking to the Financial Times at the time of the incident, Maersk’s CEO speculated that the disruption and the lingering effects of the pandemic might have a longer-term positive impact as more manufacturers and retailers might increase inventories after experiencing shortages due to the use of a just-in-time approach to moving goods.
With a current capacity of 4.1 million TEU according to Alphaliner, Maersk is currently the world’s largest container carrier with nearly a 17 percent market share. MSC stands a close second and with reports of aggressive new ship acquisitions, forecasts are that MSC will surpass Maersk to take the top spot in the future.