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Maersk Reports Loss in Second Quarter, Not a Good Sign for Global Trade says Experts

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Photo Credit: Chris Ratcliffe/Bloomberg

According to AP Moller-Maersk, which on Wednesday reported a sizable loss in their demand, the global economic slump has also had a detrimental impact on the market for shipping containers. The erosion of customer confidence and the disruption of the supply chain only serve to worsen this condition.

The Danish shipping and logistics business, which is regarded as a barometer for world trade, examined its second quarter data from last year and discovered that this year there had been a 7.4% decrease in the number of loaded container ships. The discovery caused the Maersk management to alter their predictions for this year’s performance in the container business area.

“Geopolitical uncertainty and higher inflation via higher energy prices continued to weigh on consumer sentiment and growth expectations,” stated the company.

“Given this background, in 2022, global container demand is now expected to be at the lower end of the -1% to +1% forecasted range,” Maersk added.

The range expectation of Maersk is heavily influenced by rising inflation and disruptions in the energy supply.

Issued by CEO Soren Skou, Maersk’s company statement reads:

“The result was driven by strong contract rates in Ocean, rapid, profitable growth in Logistics and continued solid performance in Terminals. Volumes in Ocean were softer as congestion continued, and the war in Ukraine weighed on consumer confidence, particularly in Europe. However, in Logistics, we grew volumes above the market as our Ocean customers continue to buy into our value proposition, resulting in organic revenue growth of 36pct., notching up the 6th quarter in a row of more than 30pct. organic growth.”

Shipping restrictions are the main catalyst of the decline

It is now clear how the Covid-19 lockdown and the conflict between Russia and Ukraine have affected the sector. Maersk claims that there has been a noticeable slowdown in container shipments to Europe, as port inventories have grown principally as a result of blockades and shipping restrictions.

“In Europe, supply chain congestion remained as retailers and manufacturers kept containers in ports and warehouses due to weak final demand. Port lockdowns in China due to the Covid-19 zero-tolerance policy as well as consequences from the war in Ukraine also caused strains in key areas of the logistics network,” explained the company in its statement.

According to Maersk, its second-quarter freight department performance exceeded expectations. Since trade congestion has reduced freight prices globally, the freight industry is doing well. As a result of “exceptional market conditions,” according to Maersk, the logistics department of their company saw an increase in profit.

“Continued congestion and dislocation of supply and demand fundamentals in the logistics industry increases the uncertainty surrounding the outlook for freight rates,” Maersk said.

The second quarter of the company

In recent data, Maersk’s profit increased by 52% year on year, reaching $21.7 billion, while operating profits more than doubled to $8.9 billion.

For the container transport business, higher freight rates entail significant financial gains. For businesses to compensate for market disruptions and to transport their goods to their intended locations in the current market conditions, they must now have access to shipping services.

A shipping company, Hapag-Lloyd AG, increased its prediction for average freight rates to 80% for the first half of the year.

Despite recent decreases, Maersk claims that freight prices remain elevated compared to the national average and are hovering at all-time highs. The business warned that prices would change if new factors emerged.

“We delivered an exceptionally strong result for the second quarter and consequently recorded the 15th quarter in a row with year-on-year earnings improvements. We are pleased with our performance across the business in the first half of 2022, which clearly demonstrates the progress and great work by the entire Maersk team, transforming the company towards becoming a global, integrated logistics company,” said the CEO of AP Moller Maersk.

Source: CNBC

Based in LA, Alice Blake is a senior reporter for Kivo Daily. She primarily covers entrepreneurs.

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