News / Q1 'better than expected' for Maersk – but 'there's more pressure to come'

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Stronger-than-expected demand and continuing disruption from the Red Sea crisis produced a better-than-expected return for AP Møller Maersk in the first quarter, supported by increased profitability in its terminals division.

Groupwide revenues in Q1 declined 13% year on year, to finish at $12.4bn, while quarterly EBIT came in at $177m, compared with $2.3bn in Q1 23 – its overall margin declining from 16.4% last year, to 1.4% in the first quarter of this year.

However, it was a much-improved performance on the previous quarter and represented an improved outlook from three months ago.

“Demand is trending towards the higher end of our market growth guidance and conditions in the Red Sea remain entrenched,” said CEO Vincent Clerc.

“This not only supported a recovery in the first quarter, compared with the previous quarter, but also provided an improved outlook for the coming quarters, as we now expect these conditions to stay with us for most of the year.

“However, we still anticipate the high number of new vessels being delivered during this and next year to eventually offset these factors and put the ocean markets under renewed pressure,” he added.

Its Ocean business saw revenue decline 19% year on year, to $8bn, and it delivered a EBIT loss of $161m, which represented a considerable gain on the $759m its shipping division lost in Q4 23, primarily due to the Red Sea crisis.

“We saw rates first spike in the early weeks of the disruptions on expectation that shortages would inevitably result from the longer sailing distances,” Mr Clerc explained.

“As the situation got entrenched, container lines, including Maersk, have reconfigured their respective network and injected extra capacity wherever feasible to cater for the rerouting and the longer disruption.

“Rates began to ease thereafter. More recently, they have started to increase again on the back of strong market demand, exacerbating the very tight supply as most of the global slack capacity was absorbed in the longer sailing routes,” he said.

This was accompanied by a small uptick in volumes –Maersk carried 5.8m teu, compared with 5.4m teu the year before.

“Stronger demand and longer Red Sea disruption will have an immaterial impact on rates in the coming couple of quarters, and continue to create inflationary pressure across our cost base that could stay with us for a while,” said Mr Clerc.

“No matter how long the disruption may last, market fundamentals of increasing overcapacity in the container markets loom and will eventually prevail, and we expect this impact to start hitting us either in Q3 or later,” he added.

However, the precarious state of the shipping market was mitigated by APMM’s terminal division, where EBIT grew nearly 50% year on year, to reach $300m for the quarter, and revenues were up to $1bn from $876m last year, due to a volume growth of 10% globally. Its North American facilities saw year-on-year volume growth of 29%, which allowed it to raise handling prices which, in turn, offset the decline in revenue from storage fees at its yards.

In its logistics and services division – comparing the Managed by Maersk, Fulfilled by Maersk and Transport by Maersk business lines – Mr Clerc said operations had stabilised and saw a marginal increase in revenues to $3.5bn. Quarterly EBIT for the unit was $45m.

“We saw this business return to growth in the first quarter, with volumes increasing across all product families, demonstrating the end of destocking and confirming the strength of our value proposition towards customers.

“The profitability of logistics and services was solid in most products, but severely impacted by challenges in contract logistics and ground freight, such that EBIT was limited to $54m, equivalent to a margin of 1.5%,” he said.

He later explained to analysts that most of the issues in ground freight were with the Pilot Freight trucking operation it acquired for $1.7bn in 2022 to break into the North America middle- and final-mile road freight sector.

“In simple terms, the organisation has been biting off more than it could chew, and that has had some tough consequences. We have now to right-size that business in order to get back to profitable growth. This has not been a good experience,” he added.

The APMM group today revised its full-year guidance: previously it had expected something between breakeven and a $5bn loss; today, it reduced that range to between breakeven and a $2bn loss.