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World’s largest container shipping firm posts soaring second-quarter earnings

Container shipping rates have skyrocketed as the global economy bounces back from the COVID-19 pandemic

Maersk, the world’s largest container shipping firm, has posted a sharp increase in second-quarter earnings as congestion and bottlenecks continue to drive up shipping rates.

The company on Friday reported earnings before interest, tax, depreciation and amortisation (EBITDA) of US$5.1 billion, a 200% increase from the $1.7 billion reported in the same period last year. Revenue was up almost 60% to $14.2 billion.

Container shipping rates have skyrocketed as the global economy has bounced back from the COVID-19 pandemic and commodity demand recovered, while a shortage of containers exerted pressure on supply chains.

More recently, a combination of rising retailer orders and slower turnaround rates due to COVID-19 outbreaks in several countries has driven prices even higher.

“Right now in container shipping we have effectively unmet demand. The global capacity is not able to lift all of the demand and that is what is driving up freight rates,” Skou told CNBC’s Squawk Box Europe on Friday.

“At the same time, of course, we have had congestion in Los Angeles, we have had the Suez Canal closed for a week, we have one of the largest ports in China closed for more than a week in the last quarter, and that takes our capacity from the market, which adds to the problem, so to speak.”

Fees soar by 500%

Rates from China to the United States, for instance, have scaled fresh record highs above US$20,000 per 40-foot box, up more than 500% from a year ago, according to the freight-tracking firm Freightos.

Skou said businesses were attempting to serve robust retail demand while also building their inventories, evidenced in extremely low inventory-to-sales ratios in the US, which contributes to the strong demand for containers that is likely to continue through at least the next quarter.

“We continue to build a higher-quality ocean business with more long-term contracts, a rapidly growing and profitable logistics business with more than half of the 38% growth stemming from top ocean customers, and a value creating terminals business, which doubled profitability in the quarter,” Skou said in statement accompanying the results.

Maersk’s return on invested capital now sits at 23.7% for the past 12 months, and Skou said the firm’s earnings and cash flow will enable it to make targeted acquisitions while returning cash to shareholders.

The Danish giant also announced on Friday the acquisition of the parcel shipping companies Visible Supply Chain Management and B2C Europe, part of its plans to grow its e-commerce capabilities.

“The outlook for the third quarter is strong and we expect that the current momentum in ocean will continue into the fourth quarter, also benefiting our terminals business,” Skou said in the statement.

Maersk on Monday upgraded its 2021 guidance to an underlying EBITDA of between $18 billion and $19.5 billion, with a projected free cash flow of at least $11.5 billion.

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Source
CNBC
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