Maersk raises profit guidance on strong demand and Red Sea disruption

Shipping group Maersk raised its full-year profit guidance after reporting first-quarter earnings on Thursday, citing strong demand and higher freight rates as ships sail for longer to avoid conflict in the Red Sea. The company, viewed as a barometer of world trade, said that shipping disruptions caused by Houthi militants' attacks on vessels in the Red Sea were expected to last at least until the end of the year, adding that growth in demand for container shipping had been stronger than forecast.

"The container volumes we see today are quite high compared to GDP growth in the world economy," said CEO Vincent Clerc. "At one point or another, we will see a normalisation of volumes." Maersk and rivals have diverted ships around Africa since December to avoid Houthi attacks in the Red Sea, sending freight rates higher because of the longer sailing times.

"We have only seen an escalation of the situation in the area and therefore we can see that not only Maersk but all shipping lines have adjusted their networks more or less permanently," Clerc said. EBITDA stood at $1.59 billion in the first three months of the year, compared with $1.46 billion expected by analysts in an LSEG poll, and $3.97 billion a year earlier when freight rates were bolstered by a post pandemic-related boost to demand.

The company reported a third straight quarterly loss in its ocean container shipping division, mainly owing to higher costs related to Red Sea bottlenecks and other disruptions. However, Clerc said Maersk would be able to push more of those costs onto customers, which would make its ocean division more profitable in the second quarter than the first quarter.

"Right now, they are getting help from the Red Sea, which gives rise to stronger earnings in the second quarter," said Mikkel Emil Hansen, analyst at Sydbank. "But if there is a solution in the Red Sea and they can once again sail through the Suez Canal, then there will be severe pressure on earnings," he said.

Shares in Maersk were trading 3.2% lower at 1257 GMT as investors still see challenges ahead. The company warned in February that a wave of new container vessels entering the market this year and next will cause overcapacity and hurt profit.

Clerc said on Thursday that global container shipping capacity would increase by 2-3% each quarter this year and next. Analysts at Bernstein expect a 15% fleet expansion across 2024 and 2025, outstripping demand. Spot freight rates tripled to almost $3,500 a container at the beginning of the year but have since eased to about $2,400.

Maersk now expects full-year underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of between $4 billion and $6 billion this year, compared with previous guidance of between $1 billion and $6 billion.

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