Maersk Faces Decline In Revenue Amid Red Sea Disruptions And Overcapacity Concerns

The shipping firm Maersk released a cautious forecast for its 2024 revenue, citing worries about an excess of container ships and disruptions in the Red Sea brought on by Houthi rebel attacks in Yemen. The announcement comes after the company had a sharp reduction in revenues in 2023, caused mainly by shipping industry overcapacity that resulted in a drop in freight prices.

Maersk saw a sharp fall in revenue from $81.5 billion to $51 billion in 2023, and its net profit fell by approximately seven times to $3.8 billion from $29.2 billion in the year before. The stock price of Maersk fell about 15% on the Copenhagen stock exchange, worsened by the suspension of the company’s share buyback plan.

Maersk
Image Credits: Maersk

After the COVID-19 limitations were loosened, freight prices spiked in 2022 but fell drastically by the end of the third quarter, 2022, as demand returned to normal and traffic dropped, creating excess inventory. Maersk attributes the correction to the sharp drops in rates and volumes transported.

Maersk has revised its 2024 core profit (EBITDA) prediction to $1.0 billion to $6.0 billion, as the oversupply concerns in the maritime shipping market are projected to materialise throughout 2024 fully.

Maersk chose to take the longer and more expensive route around the southern tip of Africa rather than send its ships back into the Red Sea or the Gulf of Aden in response to several attacks on cargo ships that occurred in these areas towards the end of 2023. US and British military have retaliated against the strikes, which are blamed on Yemen’s Houthi rebels, whom Iran backs and who target vessels connected to Israel, the US, and Britain.

The corporation recorded a $456 million loss in the fourth quarter of 2023, with sales falling 34% to $17.8 billion from the same time in 2022. CEO of Maersk, Vincent Clerc, highlighted that while the Red Sea issue initially resulted in capacity limits and a temporary rate hike, the eventual shipping capacity will produce price pressure and impact results.

Furthermore, Maersk declared its intention to split off its towage division, Svitzer, into a distinct publicly traded business as a calculated measure to simplify operations in difficult market circumstances.

Reference: Reuters

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