Maersk warns of 25% drop in shipping as virus snarls trade
The chief executive of the world’s largest container shipping line warned global trade would drop by a record amount this year and that the coronavirus pandemic could lead to a rise in protectionism.
Soren Skou, chief executive of AP Moller-Maersk, told the Financial Times that if his prediction of a 20-25 per cent fall in demand in the second quarter came true it would be “the biggest drop in demand on record, worse than during the global financial crisis”.
Maersk expects global trade to contract in 2020 but declined to give a precise outlook, instead referring to World Trade Organization forecasts of a 13-32 per cent fall in merchandise trade.
Mr Skou said that while companies worldwide were reviewing their global supply chains as a result of coronavirus, he expected them mostly to look for additional suppliers to ease their reliance on single companies rather than a widespread retrenchment.
Asked about whether he feared the Covid-19 crisis could lead to a retreat in globalisation, he said: “The element I’m more worried about is whether the pandemic will lead to a rise in protectionism. I continue to be worried about the US-China situation. But there are a number of other areas where you could see flare-ups, It would be a huge mistake for global growth.”
Maersk, a bellwether for global trade, transports almost one in five containers worldwide, shipping everything from clothing to components for trains and washing machines.
Mr Skou said the record drop in demand did not “necessarily” mean it had to be the “worst crisis” for the shipping industry. He added that significantly lower oil prices and stable freight rates would help.
“There is very little visibility as to what is going to happen,” he added. “We are taking it one quarter at a time. Our focus is to keep doing what we’re doing — adjusting capacity to weak demand so we don’t have more cost in our network than we need to.”
Maersk’s earnings before interest, tax, depreciation and amortisation in the first quarter rose 23 per cent compared with a year earlier to $1.5bn. Some analysts are forecasting it will have a better second quarter than in 2019 but Maersk declined to give a forecast either for the full year or the next three months.
Maersk is focusing on profitability over growth after several disappointing years, following its transformation away from a conglomerate to a more focused shipping and logistics group.
Mr Skou pointed out that the shipping industry was in much better shape than in the 2008 financial crisis due to three big alliances. Maersk is reducing capacity by idling ships to adjust to lower volumes. On freight rates staying steady despite the crisis, he added: “Every day they don’t drop is a good day.” Shares in Maersk fell 5 per cent.
Mr Skou said that apart from some political pressure in areas such as personal protective equipment he expected little “wholesale” changes in corporate supply chains.
“It’s important to understand what problems are you trying to solve. The problems have really been around single-source suppliers that then closed down,” he said.
He argued that the EU needed to take a more dominant role in pressing for free trade and criticised some of the government subsidies Asian rivals to Maersk were receiving.