Supply Chains Latest: Maersk Sees Soft Landing for Cargo Rates. - Bloomberg

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The world’s largest container shipping carrier expects a gradual decline in ocean freight rates from near record highs while it aims to boost slumping service reliability by the end of the year.

That was the message from Maersk at an investor conference Tuesday. Booming global trade has sent the cost of containers soaring and Maersk has been among the biggest beneficiaries. Those rates should return to more normal levels by 2022, the company indicated. 

CEO Soren Skou said Maersk wants to “ensure a soft landing from the current elevated freight rates.”

That’s not to say rates are going back to pre-pandemic lows. Johan Sigsgaard, head of ocean products, said “as it comes to an end, it will normalize at a different level and we expect rates will normalize at a level above historical.”

Despite the soaring rates, vessels are increasingly delayed for most carriers, and the Copenhagen-based company’s nearly 80% on-time measures before the pandemic are almost half that level this year. In the slide presentation, Maersk sees those improving by the end of this year.

Here are a few more key points:

• A strategic review is underway of Maersk’s of ownership of its box producing unit.
• A higher share of long-term contracts will help ensure the predictability of ocean rates.
• It said it will deliver average returns above 12% in 2021-2025, helped by synergies from its logistics and services, ocean and terminals businesses.
• Digital technology unifying its logistics, ocean and terminal businesses to better serve customers that want more flexible and less complex supply chains.
• Technology has helped it to “swiftly adjust” container capacity to meet demand.

“While volatility will be reduced, there will still be a level of volatility in the future,” said Vincent Clerc, CEO of ocean and logistics. Maersk will be “in a better position to handle shocks” going forward and will be more profitable, he said.

Maersk shares, which hit an all-time high on Monday, were down more than 3% midway through the investor conference.

—Christian Wienberg in Copenhagen

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Today’s Must Reads

• Summit planned | Commerce Secretary Gina Raimondo plans a summit with companies impacted by the global semiconductor shortage, including the largest chip manufacturers and U.S. automakers, according to people familiar with the plans.
• Heating up | China’s factory prices surged more than expected in April, supported by gains in commodity prices and a low base of comparison from last year. Separately, at least two of China’s smaller liquefied natural gas importers have been told to avoid buying new cargoes from Australia, a further example of the impact on trade from souring ties between the two countries.
• USMCA test | The U.S.’s largest labor union is leading a complaint over working conditions at an auto-parts factory in Mexico, the first case to test whether enforcement provisions in a new trade agreement can help to improve working conditions.
• Spreading wings | Tyson Foods warned it’s struggling to meet rebounding chicken demand because of a worker shortage and slow hatchings, even as a strong beef market will boost overall sales.
• Stuck in the middle | The global chip shortage has added a new layer of political sensitivity to TSMC’s business. The company does most of its production domestically, an arrangement Taiwan is eager to maintain. But the world’s biggest economies are feeling increasingly vulnerable to supply chain shocks.
• Auto earnings | Investors should see two scenarios playing out among automakers in Japan this week: On one side is Toyota, which thanks to its forward supply-chain planning has weathered the pandemic relatively well. On the other, everyone else, mired in a morass of factory closures due to the global chip shortage.
• Traffic respite | Botswana and Zambia opened the $260 million Kazungula bridge, which may help alleviate congestion at one of Africa’s busiest border crossings in neighboring Zimbabwe.

On the Bloomberg Terminal

• Shipping outlook | A $100 decline in freight rates for the remainder of the year could reduce Maersk’s Ebitda by $1 billion, Bloomberg Intelligence says. Freight rates on Asia-Europe routes fluctuated between $2,000 at the start of 2020 and over $8,000 earlier this year. Supply and demand trends are thus key in an industry heavily exposed to global GDP growth as new, extra-large and cost-efficient container ships are delivered each year.
• Port challenges | India’s Covid-19 outbreak could damp seaport traffic even if a nationwide lockdown is avoided as virus widening local restrictions likely hurt import demand and hamper export capacity. However Adani Ports, DP World and other integrated logistics service providers could gain market share, which may blunt declines and fuel post-outbreak growth. Bloomberg Intelligence says.
• Use the AHOY function to track global commodities trade flows.
• Click HERE for automated stories about supply chains.
• See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
• Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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