Shipping giant A.P. Møller - Mærsk: There is no sign of decline in US freight demand, the interruption in the Red Sea will last at least until the end of this year

Due to increased geopolitical uncertainties, A.P. Møller - Mærsk expects global supply chains to continue to be under pressure throughout the year, and states that the demand for freight in the United States remains strong, showing no signs of recession.

The financial report released on Wednesday showed that the global shipping giant A.P. Møller - Mærsk's net profit in the second quarter decreased by 45% year-on-year to USD 798 million. The group attributed the decline in profit mainly to the tense situation in the Red Sea leading to supply chain disruptions, thereby increasing operating costs.

Vincent Clerc, the group's CEO, stated that it is expected that global supply chains will continue to be under pressure by the end of this year:

"The situation in the Red Sea remains stubborn, which will keep global supply chains under pressure. It is now expected that these conditions will persist for the remainder of this year."

In addition, A.P. Møller - Mærsk mentioned that procurement orders in the United States remain strong, inventory levels have not reached concerning levels, and there are no clear signs of economic slowdown.

Strong Demand for U.S. Freight with No Signs of Recession

The shipping industry is an important window to observe the economic situation of a certain economy, and container demand is often seen as a key indicator of macroeconomic potential.

Recently, concerns about a recession in the United States have suddenly escalated, causing significant turmoil in global markets. Clerc commented on this:

"Inventory levels in the United States are higher than at the beginning of the year, but have not reached concerning levels, nor have they shown clear signs of economic slowdown."

"We have also studied the procurement orders of many retailers and consumer brands, which are expected to be imported into the United States in the next month, and they still seem quite strong... At least, based on the data and indicators we have, we still have confidence in the continuation of current consumption levels in the United States."

Regarding the global recession risk, Clerc pointed out that there are currently no signs indicating that container demand is heading towards recession territory, and strong demand is expected to continue at least until the third quarter, with greater uncertainty in the fourth quarter.

Strong Demand but Shortage of Capacity, High Profit Margins in the Short Term

Considering the Red Sea crisis combined with strong shipping demand, A.P. Møller - Mærsk has raised its full-year profit guidance and capital expenditure guidance for this year and the next.

Clerc stated in a media interview that container shipping demand in the first half of this year was very strong, with a nearly 7% year-on-year growth rate, and there was a shortage of capacity in the second and third quarters due to the disruption in the Red Sea route.

He further explained that the capacity shortage has pushed up freight rates, which is "positive" for profit margins in the short term, which is why the group has continuously raised profit forecasts over the past few months.

Last week, A.P. Møller - Mærsk once again raised its full-year underlying operating profit guidance by USD 2 billion to between USD 9 billion and USD 11 billion, marking the third time the group has raised profit guidance since May.

Clerc also pointed out that although the financial report showed a weak net profit year-on-year, the profit margin of the shipping business was "significantly better than" the previous two quarters - EBIT margin was 5.6%, compared to -2% and -12.8% in the previous two quarters.

However, Clerc also mentioned that in the long term, considering the continued pressure on supply chains, the impact of capacity shortages on profits is "somewhat unclear," and it can be foreseen that the increase in basic costs and "some form of inflation" will persist in the long term Maersk stated that the group has signed orders for 50-60 new container ships to accelerate fleet expansion and enhance delivery capabilities. This plan will increase the group's capital expenditure to USD 10-11 billion for 2024-2025, up from the previous guidance of USD 9-10 billion