Maersk reveals 10,000 job cuts amidst profit plunge and industry’s ‘new normal’
Danish container shipping giant A.P. Moller-Maersk unveiled this morning a further downturn in both profit and revenue, resulting in a decision to cut 10,000 jobs as a response to the ongoing challenges of declining freight rates and lackluster demand within the container shipping industry.
Despite these challenges, Maersk affirmed its full-year guidance for revenue and operating profit of $9.5-11bn and underlying EBIT of $3.5-5bn. However, it now anticipates that both figures will fall toward the lower end of the projected range.
The company’s revenue for Q3 2023 was $12.1bn compared to $22.8bn in Q3 2022 with an EBIT margin at 4.4% impacted by lower freight rates and lower volumes.
“Our industry is facing a new normal with subdued demand, prices back in line with historical levels, and inflationary pressure on our cost base,” Vincent Clerc, CEO of Maersk, said.
“Since the summer, we have seen overcapacity across most regions triggering price drops and no noticeable uptick in ship recycling or idling. Given the challenging times ahead, we accelerated several cost and cash containment measures to safeguard our financial performance.”
Maersk said that the downturn was expected after record profits over the past couple of years as the market entered a normalization stage. Nevertheless, as revenues return to pre-pandemic levels they are eaten away by higher costs, primarily by elevated fuel prices.
- Ocean volumes increased by 9% over the previous quarter, with an 11% cost reduction at fixed bunker compared to Q3 2022. However, EBIT was negative at $27 million, down from $8.7 billion in Q3 2022, due to significant rate pressure on various trade routes.
- Logistics & Services generated $3.5 billion in revenue, down from $4.2 billion in Q3 2022, impacted by lower prices.
- Terminals reported $1.0 billion in revenue, down from $1.1 billion in Q3 2022, attributed to reduced storage demand and a 4.1% volume decline
The market headwinds have been significantly heightened by the influx of newly-built vessels, further damaging the supply-demand balance and resulting in stagnant freight levels that ended up hurting profits.
Maersk’s counterpart, Ocean Network Express (ONE) said that its half-year profit took a 94% hit year-on-year.
To cushion the impact, Maersk has already been working on a workforce reduction from 110,000 in early 2023 to around 103,500 today.
However, as the price outlook in the company’s ocean branch worsened, Maersk started intensifying those measures and today introduced plans to further decrease the workforce by 3,500 positions. Up to 2,500 will be carried out in the coming months and the remaining are set to extend into 2024.
This will reduce the global workforce to below 100,000 positions. Accordingly, the total expected restructuring charge is now expected at $350m, up from $150m announced in February.
The move is expected to bring down Maersk’s selling, general and administrative expenses cost by $600m for 2024.
In addition, CAPEX spending has been adjusted downward for 2023 and 2024 standing at $8-9 billion and further measures are under review, including the continuation of the share buyback program into 2024.
The announcement comes amid unconfirmed media reports that said Maersk’s parent, AP Moller Holding, was readying to order up to ten very large ammonia carriers worth around $1.1 billion.
Maersk has been a strong supporter of the adoption of alternative fuels, and in September welcomed its first methanol-powered containership.
Maersk has 24 additional methanol vessels on order for delivery between 2024 and 2027 and has a policy to only order new, owned vessels that come with a green fuel option.