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Maersk profit risk: MAERSKA stock price under pressure as global shipping volumes plunge

By David Burrows

10:15, 3 October 2022

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HLAG
HAPAG-LLOYD AG NA O.N.
191.210 USD
-0.5 -0.260%

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Container ship on the sea. Photo: Getty
Shipping volumes are forecasted to fall between 2022/23. Photo: Getty

The Danish shipping giant Maersk share price is under pressure as global business volumes fall sharply.

A drop in available exports and inflation’s impact on consumer demand are causing a significant decline in shipping volumes.

Maersk’s share price has fallen around 38% since early August from 21,500DKK level to a current level around 13,300DKK. German rival Hapag-Lloyd (HLAG) has fared even worse during the same period: down 50% to €178.

Hapag-Lloyd (HLAG) share price chart

Maersk benefited from rising freight rates following a surge in consumer demand during and immediately post pandemic. This huge demand led to logjams at many ports around the world.

But the picture has changed considerably since. Global trade generally is weakening – the World Trade Organisation’s recent Goods Trade Barometer cited the ongoing conflict in Ukraine, rising inflationary pressures, and expected monetary policy tightening in advanced economies as significant headwinds.

Research last month from S&P Global Market Intelligence indicated that freight rates had fallen due to the easing in supply chain disruptions built up over the pandemic.

However, a greater factor in the slowdown in demand for container shipping was due to weaker cargo movement.

S&P’s Freight Rate Forecast models have also predicted the Baltic Dry Index — a barometer for the price of moving major raw materials by sea — is expected to fall by about 20%-30% for the year before recovering slightly in 2024.

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Gloomy shipping forecast

The gloomy picture presented here, suggests the decline in the industry is likely to continue for some time given the current global inflation and rising interest rate backdrop.

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Inflation in fuel costs is already causing Maersk to act. Last week, the company’s CEO, Soren Skou, announced that Maersk would begin to slow the pace of its container ships in order to lower fuel costs.

Vessels had been sailing at full speed to keep up with supply slowdown due to Covid.

In an interview with Reuters, Skou pointed to US consumers buying less and consumer confidence generally being weakend by Russia's invasion of Ukraine.

He also revealed that volumes headed into the Christmas season were lower than in a normal year.

Expanding business  

The Danish shipping firm expanded its global footprint as the world came out of lockdown.  Late last year it acquired Hong Kong-based LF Logistics for $3.6bn in an all-cash deal.

The deal, one of the largest in Maersk’s history, gave it access to hundreds of warehouses in Asia, providing revenue beyond its ocean freight business. (It operates approximately 730 container ships).

Maersk’s purchase of LF Logistics added 223 warehouses to its existing portfolio, bringing the total number of facilities to 549 globally.

Brokers have mixed views on Maersk right now. Marketbeat reveals a consensus rating of hold – but that includes four ‘buy’; three ‘sell’; and two ‘hold’ ratings.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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