Global shipping services provider A.P. Moeller Maersk report of Q1-2022 financial performance provides indications of what multi-industry supply chain management teams can expect for the remainder of 2022 in the area of ocean container transportation.

The latest quarterly financial performance included:

Total quarterly revenues of $19.3 billion, an increase of $6.9 billion on a year-over-year basis. Quarterly revenue increases for specific business units included a $6.9 billion increase in ocean transport and an $834 million increase in logistics services.

EBIT increased $7.5 billion, primarily driven by ocean revenue increases but included a negative impact of $718 million from the Russia/Ukraine conflict and losses related to terminals related to these areas. CEO Soren Skou indicated that Maersk wrote down most of its assets held in Russia and is seeking to divest of port and warehousing assets in the region over the coming quarters. EBIT generated from logistics services reportedly increased to $183 million from total revenues of $2.9 billion in the latest quarter. Maersk announced the acquisition of U.S. based Pilot Freight Services for a reported 47.1 billion in Q1. Maersk is currently integrating three different acquisitions and according to its CEO, will acquire more capabilities in the logistics space once the current acquisitions are assimilated.

Free cash flow increased to $6 billion generated from operating activities. A total distribution of cash to shareholders of $6.5 million was recorded during the quarter. A total share buy-back program amounting to $10 billion was approved at the company’s annual meeting held in March 2022.

 

Added Observations

Reporting on Maersk’s latest quarterly financial performance, Bloomberg noted that about 71 percent of the company’s container freight business is now locked into long-term contracts, an indication of less exposure to the volatility of spot market ocean freight rates. CEO Skou indicated to Bloomberg that the contractual rate could climb to upwards of 80 percent.

Regrading the current Covid-19 lockdowns occurring among major population and manufacturing regions in China, CEO Skou acknowledged that although major ports remain open, land-based logistics services have upended goods movement.

 

Outlook for Remainder of 2022

Maersk now indicates that exceptional market conditions will increase profitability levels to upwards of $30 billion, up from a prior forecast of $24 billion. Free cash flow is now expected to be upwards of $19 billion, from previous guidance of $15 billion.

The global shipping and logistics services firm further revised downward its estimate of annual container volume. The current guidance is an expectation of demand between minus one percent to plus one percent, from a previous forecast of from two to four percent increase in annual container volume.

Readers should let the above forecast revision sink in, namely near flat annual volume increase, likely ongoing major global port disruptions but with added profitability based on contractual rates.

As Supply Chain Matters has highlighted in previous commentaries, industry forecaster Drewry has indicated that the ocean container industry may generate upwards of $300 billion in profits in 2022, up from a previous record level of $214 billion last year. That is going to increase pressures for added price increases for end products which fuels the perception of global supply chain driven cost inflation. Such elevated container shipping rates are especially impactful to small and medium sized businesses that continue to either have to navigate spot rate freight implications are forced to tender freight to third-party logistics services providers which are also financially benefiting from the ongoing transportation disruptions.

The industry and its stakeholders remain under the looking glass for possible added regulatory measures but that is little comfort to industry supply chains now locked into long-term contracts.

 

© Copyright 2022, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.