Maersk raises full-year guidance as it rides exceptional market

Industry heavyweight A.P. Møller – Mærsk A/S has lifted market guidance for the full year of 2021 citing an exceptional market situation in the container shipping sector.

Illustration; Image credit: Maersk

The company is now forecasting an underlying EBITDA in the range of $13-15bn from the previously guided $8.5-10.5bn and underlying EBIT in the range of $ 9-11bn against $4.3-6.3bn guided earlier.

For the first quarter of 2021, Maersk reported an unaudited revenue of $12.4bn, an underlying EBITDA of $4bn and an underlying EBIT of $3.1bn

The continued strong performance was ascribed to surging demand leading to bottlenecks in the supply chain and container shortage.

Volumes in Ocean increased by 5.7% and average freight rates improved 35% in Q1 2021 compared to the previous year, the company said.

The free cash flow for the full-year 2021 is now expected to be a minimum $7bn, double the previously expected amount, while the cumulative Capex guidance for 2021-22 has been raised to around $ 7bn from $4.5- 5.5bn. This is greatly due to the higher expected Capex to provide additional containers to relieve the current bottlenecks and improve service reliability in Ocean and the organic growth in Logistics & Services.

“The outlook for the global market demand growth for the full-year 2021 has been revised up to 5-7% from previously 3-5%, primarily driven by the export volumes out of China to the US,” Maersk said.

“Trading conditions for the quarters ahead remain subject to a higher than normal volatility due to potential changes in current demand patterns and the current disruptions in the supply chains and equipment shortages impacting the short-term container freight rates.”

Why container freight rates have surged

 Jan Hoffmann, head of UNCTAD’s trade and logistics branch, believes that high container rates will result in the ripple effect hitting consumers as many businesses won’t be able to bear the brunt.

Contrary to expectations, demand for container shipping has grown during the pandemic, bouncing back quickly from an initial slowdown.

“Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods,   a large part of which is moved in shipping containers,” an UNCTAD policy brief says.

The surprising demand increase was not met with a sufficient supply of shipping capacity, which resulted in an unprecedented shortage of empty containers, UNCTAD added.

Currently, rates to South America and western Africa are higher than to any other major trade region. By early 2021, for example, freight rates from China to South America had jumped 443% compared with 63% on the route between Asia and North America’s eastern coast.

To help reduce the likelihood of a similar situation in the future, the UNCTAD policy brief highlights three issues that need attention: advancing trade facilitation reforms, improving maritime trade tracking and forecasting, and strengthening national competition authorities.