Skou addressed questions on current market conditions during a live Reuters Newsmaker interview on Thursday. He voiced no concerns about Maersk and kept earnings guidance unchanged. However, his comments on sinking demand implied that carriers with less contract coverage and land-based logistics business than Maersk have something to worry about.

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Demand drops ‘significantly’

“We have significantly less demand, especially for [shipping of] durable goods,” said Skou. “We see demand globally being driven down. Not as much by a recession or inflation, but more by the fact that there was overdemand during the pandemic.

“When many of us were not able to travel and spend money on services, we all upgraded our houses in different ways. And we don’t need another flat-screen or another washing machine or another couch.”

Inflation and consumer sentiment headwinds are now compounding the effect of pulled-forward demand.

“We clearly see an impact, particularly in Europe and to some degree in the U.S., of consumers not being able to buy quite the same amount of things as before because of increased pricing,” said Skou. “In Europe, consumer confidence is also probably quite negatively influenced by the war at our doorstep.”

Cargo volume in the current Christmas import peak season is “perhaps less than what it had been,” Skou acknowledged, although he pointed out that this is largely because “the normal cyclicality of global trade has been suspended for the last couple of years. We’ve been buying products in large volumes at times of the year we don’t normally buy them.”

Pandemic effect now in reverse

Skou sees the current ocean shipping supply-demand dynamic as the reverse of the one driving the pandemic peak.

“If you go back to late 2020 and the beginning of 2021, when everything really took off from a demand and congestion point of view, on one hand, we had sharply increasing demand for goods around the world, partly driven by lots of stimulus into the economy. At the same time, supply of labor was constrained because of people being ill or being restricted from going to work. So, we had this double effect of both more demand and less [transport] supply.

“Right now, it’s working in the other direction,” he said. There is significantly less demand “at the same time we see labor coming back because there are no [COVID] restrictions.”

There’s not only more labor. There are also more ships in service, because fewer vessels are stuck waiting for berths. “Of course, we still have congestion. That situation has not normalized yet,” said Skou, pointing to strikes affecting European ports and ongoing queues off other ports. “But it is clearly getting better.”

No hard landing predicted (for Maersk)

Reuters correspondent Jacob Gronholt-Pedersen asked Skou whether, given the worsening economic outlook, there would be more of a “hard landing” than a normalization.

“I don’t see a hard landing [for Maersk],” said Skou, pointing to landside logistics and not ocean shipping as the savior.

Compared to other carriers, Maersk boasts a combination of more ocean contract coverage to offset ocean spot exposure and more land-based business to offset both ocean spot and contract exposure.

Maersk said during its August quarterly call that it has 71% of its long-haul volumes on contracts of a year or more, with those contract customers heavily skewed toward beneficial cargo owners as opposed to freight forwarders. “We have a very large share of our book of business in ocean on contract,” Skou reiterated on Thursday.

Meanwhile, Maersk has spent the past six years focused on becoming an end-to-end logistics provider, acquiring over 10 logistics companies.

“For Maersk, we expect to continue to see a modest development or weak demand on the ocean side,” said Skou. “Obviously, volumes in ocean will be flat or even declining this year. But we also expect to continue to grow very rapidly on the landside logistics side.”

Demand up for end-to-end logistics

Skou maintained that “demand for end-to-end logistics and integrated logistics has clearly gone up.”

“The pandemic meant that our customers are reconsidering global supply chains. They’re thinking more about how much inventory they have and where it is. And about how many suppliers they have and where they’re located. They’re saying they can no longer rely on just one country. For many of them, that specifically means they are moving part of their production out of China. Most of them are also thinking in terms of omnichannel [distribution], fulfilling goods to both physical stories and to consumers directly.

“All of these things together mean that customers see the need for more integrated logistics. It complicates and fragments supply chains, which makes it even more important that you have a good logistics provider that can help you keep control of your supply chain.”

by Greg Miller. 29 September 2022.

Source: American Shipper. https://www.freightwaves.com/news/shipping-giant-maersk-significantly-less-demand-but-no-hard-landing. 1 October 2022.

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