Supply Chain Matters highlights ocean container shipping line Maersk’s preliminary report of 2021 financial performance and predictions that ongoing transportation inflation are unsustainable without remediation actions.
Maersk Preliminary 2021 Financial Performance
Second ranked ocean container shipping carrier A.P. Moeller-Maersk has raised its profit forecast for this year after reporting preliminary financial performance for 2021.
According to the preliminary and unaudited report, the global high visibility carrier anticipates that 2021 underlying earnings before interest, taxes, depreciation and amortization (EBITA) to be near $24 billion for the year. That level of earnings would reportedly match or surpass this carrier’s combined results over the past nine years of financial performance. The reported number is also higher than a November 2021 forecast of expected earnings in the range of $22 billion to $23 billion.
What is of noteworthy significance is that Maersk’s shipping volumes actually decreased by 4 percent in the final quarter while freight rates rose by 80 percent on a year-over-year basis.
The carrier indicated that for the full year, free cash flow (FCF) would be an estimated $16.4 billion, vs. previous guidance for a minimum of $14.5 billion.
Formal reporting of results as well as a Q1-2022 financial outlook is expected on February 9.
Double-Digit Transportation Rate Inflation Unsustainable
This week we announced availability of our published Ferrari Consulting and Research Group’s 2022 Predictions for Industry and Global Supply Chains, now available for complimentary downloading in our Research Center.
Prediction Four indicates our belief that the cost inflation trends that occurred among logistics and transportation modes in 2021 are unsustainable and will drive remediation actions with various consequences.
Last week, the Conference Board, a business research group issued results from a survey involving more than 900 global-based CEO’s. In that survey, reportedly 82 percent of CEO’s indicated they are facing upward price pressures for input costs for their businesses. U.S. based executives cited labor shortages, inflation and supply chain related problems as their top three concerns. European CEO’s ranked inflation as their top concern. Such data of C-Suite concerns points to added attention being focused in the coming year.
We want to additionally call Supply Chain Matters reader attention to a report published by Bloomberg this week-as part of a Big Take column- Shipping Companies Had a $150 Billion Year. Economists Warn They’re Also Stoking Inflation (Paid subscription or metered view). If readers have the opportunity to do so, have a read of the entire report and its insights.
The essence of this report is that while ocean container shipping rates are expected to stay elevated well into this year, and perhaps longer, the effects are leaving smaller companies and their customers with significant inflationary cost pressures. Carriers amassed an estimated $150 billion in profits during 2021 a nine-fold increase after decades of low or little profitability performance. The report observes that for the first time, the pandemic demonstrated just how adept container carriers have come at managing capacity in the notions of the four industry capacity alliances controlling over 80 percent of capacity among global shipping lanes.
Specifically noted: “The situation is throwing a spotlight on the market concentration of shipping lines, and their legal immunity from antitrust laws.” The report cites carrier Maersk’s recent preliminary results and goes on to state:
“The extended windfall (of the industry) has touched a raw nerve across the political spectrum as economists warn that persistently high transportation prices are stoking inflation and clouding the recovery. High costs for freight that used to fan only temporary spells of inflation upticks are becoming longer-term features of economies in the U.S. and elsewhere.”
Also observed is that the last major update to global maritime shipping laws was in 1998, a time before today’s notions of extended global trade and consequent globally stretched product demand and supply networks. During this same period, the industry has undergone many changes related to consolidation.
Supply Chain Matters would add our belief that now rich with profit generated cash, some in the industry, such as Maersk, have declared strategic intent on added integration of land-based logistics services, in essence adding more market influence.
In the end, businesses and their transportation and logistics senior management leaders will have to not only assess what directions and consequences will occur this and future years, but also navigate another year of service erosion and higher cost challenges.
The situation indeed seems ripe for change- the question is how much and when.
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