Maersk issues warning over stagflation and Chinese factory closures

AP Møller-Maersk has warned of growing economic risks including potential stagflation and Chinese factory closures even as the world's largest container shipping group by profits reported a record quarter.

Maersk’s chief executive Søren Skou said the current second quarter was developing very much in line with the first three months, which brought the highest profits in the Danish group’s 114-year history.

But he added: “We are assuming a slowdown in the second half, a normalisation. The visibility is quite low. Mainly we see risks building up in the economy, in China with the Covid-19 policy, where they use these very hard lockdowns, some downgrades due to a very high oil price.”

Containers

Maersk, which transports more than one in every six containers over the seas and is considered a global trade bellwether, last week downgraded its growth forecast in the shipping industry this year to a potential small fall.

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It also upgraded its profit forecast for this year to $24 billion of underlying operating profit, up from its February estimate of $19 billion. Mr Skou stressed the new guidance was based on a “sharp decline” in freight rates in the second half so “we have quite some ability to weather a bit of a storm”.

Maersk’s chief executive noted that the warning clouds were gathering for the second half of this year as he pointed to some economists forecasting a recession in the US around the end of the year. He said it was “too early” to tell if that was likely to happen.

“We clearly see inflation, and I don’t think it’s temporary,” he added.

“There are quite a number of factors that suggest we will see less growth in the second half and into next year,” he said, pointing to declining consumer and business confidence in Europe and the US as well as declining Chinese export orders.

Maersk was suffering from negative volumes due to a “mind-blowing” sixth week of lockdowns in Shanghai, although it had not yet been dramatic, Skou said. But he added: “What everyone fears is that you get a big spread of Omicron that forces China to shut factories. We don’t see it yet.”

His comments came as Maersk reported revenues up 55 per cent in the first quarter to $19.3 billion, while net profit more than doubled to $6.8 billion.

Shipping

Mr Skou said regulators around the globe had investigated the container shipping industry but concluded that high profits were merely down to supply and demand dynamics, although he expected more such probes in the future.

Maersk’s record results came despite operating losses of $718 million from the fallout of Russia’s invasion of Ukraine, including the Danish group leaving behind 20,000 containers in Russia and exiting operations in logistics and port terminals. It completed its last cargo operation in a Russian port on Monday, Maersk added.

Maersk was continuing its share buyback programme and would in the “long term” make more acquisitions to build up its growing logistics business, but in the short term needed to digest a series of recent purchases, Skou said.

He added that he didn’t “see much potential to speed up the greening” of Maersk’s ships, where it is already the industry leader, but is stepping up purchases of electric trucks. – Copyright The Financial Times Limited 2022