Maersk downplays Red Sea boost, warns excess supply will hurt earnings

Maersk's shares were severely damaged on Thursday when it issued a warning that the overcapacity of container shipping would hurt earnings more than anticipated this year.

Maersk said that it did not see a significant boost from the increase in freight rates brought on by disruptions in the Red Sea.

Investors recent optimism about the industry contrasts sharply with the warning, which also caused the Danish shipping giant to halt its share buyback program.

In 2024, container shippers have been among the best-performing European stocks thus far, thanks to increased freight rates brought about by ship rerouting in response to attacks on shipping by militants backed by Iran in the Red Sea, a vital trade route.

Similar to other shippers, Maersk has been rerouting some of its vessels on a longer route around Africa. However, some analysts had predicted that increased freight rates and longer journey times would dominate the number of new container ships entering the market.

However, Maersk CEO Vincent Clerc told reporters in Copenhagen that the company did not anticipate a significant impact and that the Red Sea crisis did not match the size of the bottlenecks caused by the pandemic, which increased shippers' profits.

Rather, the business predicted that "significant oversupply challenges" in container shipping would fully emerge in 2024 and become apparent in 2025, possibly even 2026.

A surge in the order of new vessels was caused by the pandemic's 2022 boost to shipping profits.

At 10:18 GMT, shares of rival Hapag-Lloyd had dropped by about 8%, while Maersk's had dropped 14%.

Seen as a gauge of global commerce, Maersk stated that it anticipated underlying profits before interest, tax, depreciation, and amortisation (EBITDA) of $1 billion to $6 billion this year, down from $9.6 billion realized the previous year.