Exceptional, extraordinary, unparalleled. AP Møller-Maersk, one of the world’s largest container shipping companies, ran out of superlatives on Wednesday to describe the record numbers the logistics giant posted in 2022.
Strong demand for freight transport and sky-high container rates resulted in the best figures ever in Danish company history last year.
Due to these “abnormal market conditions in the first half of the year”, Maersk achieved a profit of 29.3 billion dollars (27.3 billion euros; +63 percent) on a turnover of 81.5 billion (+32 percent).
“An exceptionally strong year,” the new CEO Vincent Clerc called it on Wednesday. Now 2022 was not entirely an ‘exception’ for Maersk – 2021 was also very good – but the profits of tens of billions will come to an end for the time being.
Clerc warned that global demand for containers is falling – and with it freight rates and revenues. You already saw that in the fourth quarter.
These are challenging times for Maersk’s first non-Danish chief executive. The Swiss Clerc succeeded Søren Skou on January 1. In seven years, it laid the foundation for Maersk’s current transformation. The group wants to become less dependent on sea container transport and become more of a service provider that takes care of the entire transport. From the factory to the front door of the consumer. Clerc faces four challenges in doing so.
1. The looming recession
Container transport is a barometer of the global economy. If we have money, we order stuff. In China. Then the containers are full of electronics, fitness equipment, garden furniture. But if consumer spending falls, the shipping companies will notice immediately.
The high demand for consumer goods – during the pandemic and shortly afterwards – pushed up the rates that shipping companies could charge per sea container. In February 2022, it cost $13,687 to ship a 40-foot (standard size) container from Shanghai to Rotterdam. A year later, that is $ 1,732, according to him the British agency Drewry. Container rates to Los Angeles, New York and Genoa have also fallen sharply.
Maersk stated on Wednesday that global container transport will not or hardly grow this year. The expectation is between a contraction of 2.5 percent and a growth of 0.5 percent. Maersk expects a gross result (EBITDA) in 2023 of between USD 8 and USD 11 billion (2022: USD 36.8 billion).
2. The sustainability
Shipping is responsible for 3 percent of global greenhouse gas emissions. However, the sector managed to evade international climate agreements for a long time, but that time seems to be over. Maersk wants to be a leader in the decarbonization of shipping.
While the UN shipping organization IMO aims to reduce maritime emissions by 50 percent by 2050 (compared to 2008), Maersk aims to be climate neutral by 2040.
It’s not that far yet. In 2022, Maersk saw its CO2emissions per ton of cargo per nautical mile would rise by 7 percent. The company does invest: it ordered more than four hundred e-trucks in the US and bought six large container ships that must (partly) run on green methanol. In 2021, the Danes already ordered thirteen methanol ships.
Green methanol is a more sustainable marine fuel than fuel oil. However, methanol made from renewable sources (hydrogen from wind energy, carbon dioxide from biomass) is at least twice as expensive as heating oil and is still difficult to obtain. Maersk expects to need 1 million tons of methanol per year for the 19 new ships. According to business newspaper The Wall Street Journal just under 200,000 tons of green methanol is now produced annually.
Maersk reported on Wednesday that it has signed contracts with methanol producers in the US, Asia and Europe and with authorities in Spain and Egypt, among others.
3. The competitor MSC
For twenty-five years, Maersk was the most powerful container shipping company in the world. Until the Danes were surpassed by competitor MSC in January 2022. The Mediterranean Shipping Company, an Italian group headquartered in Geneva, has since had more transport capacity than Maersk.
According to analyst firm Alphaliner MSC operates 725 container ships, carrying 4.6 million 20-foot containers (twenty feet equivalent, TEU) can transport. Maersk has 699 ships with a total of 4.2 million TEU.
MSC is not only a competitor of Maersk. They have also shared ship capacity since 2015. MSC ships took Maersk containers and vice versa. Last month, the two reported that they are dissolving their marriage of convenience. Maersk wants more control over container transport, CEO Clerc said on Wednesday. “That doesn’t work as well in an alliance.”
The alliances have been criticized for some time. Shippers complain that they keep rates artificially high. The three current alliances together control 84 percent of trade between Asia and North America.
The European Commission tolerates the cooperation, even if it is at the expense of the free market. The exception will be reviewed again in 2024. The power of the alliances has broadened in recent years as container carriers also bought companies in other branches of logistics such as road transport and air freight.
4. Maersk’s transformation
Maersk and MSC want to grow, but choose different paths. MSC, which probably also made a profit of billions but does not publish figures, is still looking for growth mainly in maritime transport. The group ordered 133 new container giants (partly also methanol).
Read also: And then a billion-dollar company knocked on the door in Almere: why Maersk took over small B2C
Maersk, on the other hand, is trying to broaden its offering. For example, last year the group bought road transporters, distribution centers and other service providers in the US and Asia. In the Netherlands, Maersk acquired B2C Europe in Almere, a specialist in e-commerce.
“As we enter a year with a challenging macroeconomic outlook, we are determined to accelerate our transformation,” said Maersk CEO Clerc on Wednesday. A challenge: in 2022, 79 percent of turnover and 94 percent of gross profit will still come from container shipping.