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Red Sea Crisis Hits Maersk Outlook: 'Oversupply Will Cause Price Pressure, Impact Results'

Published 08/02/2024, 17:52
Updated 08/02/2024, 19:10
© Reuters.  Red Sea Crisis Hits Maersk Outlook: 'Oversupply Will Cause Price Pressure, Impact Results'

Benzinga - by Neil Dennis, Benzinga Staff Writer.

The impact of shipping disruptions hasn’t yet been felt in global commodity markets, but the companies that are carrying freight around longer routes are certainly feeling the pain.

What Happened: Shares in Danish shipping giant Moller Maersk (OTC:AMKBY) were down 15.5% in morning trade in the U.S. after it warned of the possible impact of the “new uncertainty” on its 2024 earnings. The company added that it was immediately suspending its share buyback program.

Vincent Clerc, CEO, said: “The current market remains one of robust volumes, but while the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates, eventually the oversupply in shipping capacity will lead to price pressure and impact our results.”

He added, when interviewed on CNBC earlier: “The impact of this situation is causing new uncertainty for how this is going to play out from an earnings perspective throughout the year.

“We have very little visibility as to whether this is a situation that will resolve in a matter of weeks or months, or whether this is something that is going to be with us for the full year.”

Maersk now anticipates full-year earnings in 2024 to be somewhere between $1 billion and $6 billion. In its full-year 2023 results, announced on Thursday, the company reported earnings of $9.6 billion.

Also Read: Houthis Vow To Continue Targeting US, UK Warships In Red Sea – Benzinga

Fourth-quarter earnings were also on the low side of expectations. For the October-December period, Maersk reported core earnings of $839 million compared to the $1.13 billion expected by the market.

While the company called the results “solid,” it said its $51.1 billion annual revenue had been impacted by declining freight rates.

Although the share buyback was canceled, the company said it was paying an annual dividend of NOK515 ($48.50) per Copenhagen-listed share. Shares on the Danish exchange were down 16% to NOK10,780.

Why It Matters: Many container shipping firms and bulk carriers have been avoiding the Red Sea due to the continuing attacks on vessels by Iran-backed Houthi militia from Yemen.

This has caused delays and additional costs as shipping heading for Europe and the U.S. east coast diverts around the Cape of Africa. The Containerized Freight Index has more than doubled since October, from around 1,000 to more than 2,000 points.

Oil that is usually shipped through the Red Sea has also been diverted around Africa, but so far the price response has been minimal.

On Thursday, Bank of England Monetary Policy Committee member Catherine Mann warned of the supply chain disruption from the Red Sea could quickly feed into goods pricing around the world and drive another rise in inflation.

Meanwhile, Germany said it was deploying a naval frigate to the region to have it take part in an EU mission to defend shipping from further attacks.

Now Read: Houthi Rebels Fire Missile At US Warship Amid Red Sea Conflict

Image: Shutterstock

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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