In this and subsequent follow-on Supply Chain Matters blog commentaries, we are surveying the recent fist quarter financial and operational performance of some bellwether companies’ indicative of industry product demand and supply networks trending. Our goal is to share indicators of how certain industries, companies and customers are faring during this unprecedented 2021 global supply chain surge.
For this commentary we focus on A.P. Moeller-Maersk, operators of the leading ranked global container shipping line.
This week the shipping operator announced financial performance for the first quarter of 2021 amid the ongoing global container shipping disruption. Headlines and social media commentary blared that the recent quarter was the strongest financial performance quarter in the shipping firm’s 117-year history.
Results included total revenues of $12.4 billion, reflecting a 30 percent year-over-year growth rate. Net profit surged to $2.7 billion, up from the $197 million reported in the first quarter of last year when the COVID-19 pandemic had forced China into lockdown. Shipping volumes reportedly rose 5.7 percent in the quarter and average freight rates were noted as 36 percent higher.
The shipping carrier now forecasts that container shipping demand will grow between 5 to 7 percent this year compared to a prior forecast of from 3 to 5 percent. Such a level is extraordinary given shipping volumes over the past three to five years. News of the latest performance caused the company’s stock to surge over 6 percent.
Maersk CEO Soren Skou observed that shipping demand remains robust and noted: “That won’t change anytime soon as the American and other major economies are recovering fast.” Further noted was that the industry’s favorable volume conditions are expected to continue “well into” the fourth quarter of this year.
Maersk now forecasts that EBITA for the full year will almost double, growing to a range of $9 billion to $11 billion compared to the $4.3 billion to $6.3 billion previously expected. The carrier further announced a supplemental stock buyback program worth upwards of $5 billion.
Thus, multi-industry supply chain management teams can anticipate continued disruptions and high container rates past the 2021 holiday fulfillment quarter. Supply Chain Matters recently shared perspectives on April’s PMI indices reflecting continued overall surges in global production.
Maersk’s business model prior to COVID was to morph from ocean container shipping into a full-service inland logistics provider that in some cases can include last-mile delivery. With the ongoing surge in global supply network production levels, the carrier seeks to accelerate its transformation. Reporting on Maersk’s latest performance, Bloomberg observed: “Unlike some carriers that are increasing their exposure to the red-hot spot market, Maersk is going in the opposite direction, increasing long-term contract exposure, including more multi-year deals.”
CEO Skou indicated to analysts and investors this week that the company has now completed 80 percent of its contract deals for this year, with the remainder to be settled by the end of May. Long-term contract coverage is expected to increase 20 percent compared to last year. Further noted by Skou was that the benefits of this extraordinary transport market will go away at some point and that Maersk plans to supercharge the logistics services business while the existing boom continues.
In the latest quarter, revenues from its logistics services business unit reportedly rose 42 percent to $2 billion.
Additional Supply Chain Matters Perspectives
Frequent readers of Supply Chain Matters will likely note that over the years, we have not taken a positive view relative to the global ocean container transport industry.
Prior years of subdued global shipping volumes caused shipping lines to confront a rather challenging overcapacity situation, having to idle ships because of an obvious ship supply vs. demand imbalance. None the less, the industry embarked on a race to build and deploy massively larger container vessels in an effort to leverage more volumes, added efficiencies and lower operating costs. The problem with that strategy remains that these mega-ships require added time to load and unload in major global ports. In the recent Suez Canal blockage in March, one of those mega vessels, the Ever Given, managed to run aground and block the entire width of the canal for multiple days. As we pen this commentary, the Ever Given is still being retained by Egyptian authorities in the Suez Canal pending resolution as to payment for the armada of equipment and resources needed to eventually free this ship.
Further, there are now increasing incidents of container accidents where boxes are either shifting or falling into the sea during severe storms, adding additional perils for shipping crews and for shipping customers.
Add to all of this, the prior creation of shipping line service consortiums that allow carriers such as Maersk to pool ships with other carriers to service major global ports, forcing customer service levels to the lowest common denominator within the consortium. With vessel operators such as Maersk now moving toward added integration of door-to-door logistics services, shippers will continue to be challenged to understand which line holds responsibility for delayed shipments.
Finally, add the existing severe container availability crisis, and published examples where U.S. exports sat on docks because container lines were picking and choosing which exports to ship.
The same industry that provided the impetus for the Suez disruption, turns a blind eye to the consequences or effects. The industry leader that is now handsomely profiting from the ongoing crisis of global shipping garners the benefits for its stockholders while the companies dependent on reliable, timely shipping schedules and predictable transportation costs are communicating concerning news to their investors.
As we have observed, the notions of maritime and transportation regulation do not at all appear to be up to the task of what has become today’s Omni-channel driven shipping and transportation business models that involve asset and non-asset owned participants.
The notion of regional and global wide regulation was to protect the interests for evenhanded commerce and for basic service level protections for shippers. The lines are more than blurred at this point and we wonder aloud if regulators will do anything to change what is becoming a continuing conflict of business interests.
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