A.P. Moller-Maersk, one of the world’s biggest shipping conglomerates, has experienced a significant decline in profit and revenue during the third quarter. As a result, the company plans to cut at least 10,000 jobs due to overcapacity, rising costs, and weaker prices in the industry.
Vincent Clerc, the CEO of Maersk, stated that the company is entering a “new normal” marked by a subdued macroeconomic outlook, soft volume demands, historical price levels, inflationary pressures on costs, and increased geopolitical uncertainty.
During and after the pandemic, the shipping industry heavily invested in new container ships to meet high demand and take advantage of record freight rates. However, the influx of new ships into the market, with no signs of idling or scrapping, has raised concerns about overcapacity.
Maersk expects global container volumes to decline by up to 2% this year, largely due to weak consumer demand and destocking by firms following the pandemic.
Following the announcement, Maersk’s shares plummeted 17.5% to their lowest level in three years. Analysts believe that the share price was also impacted by the company reconsidering its share buyback program until 2024, indicating potential difficulties ahead.
With the goal of reducing costs, Maersk aims to decrease its workforce to below 100,000 from its current count of 110,000. This move is expected to result in cost savings of $600 million next year and beyond.
Despite the challenging conditions, Maersk has maintained its full-year guidance for revenue and operating profit. However, the company anticipates that both figures will fall at the lower end of the range.
In the third quarter, Maersk’s operating profit plummeted to $1.9 billion from $10.9 billion the previous year, while revenues saw a 47% decline, amounting to $12.1 billion.
These developments highlight the immense pressure faced by the shipping industry, forcing companies like Maersk to take drastic measures to mitigate losses and adapt to the changing market dynamics.