U.S. Markets closed

Maersk – Container Shipping's Long-Term Profitability Remains Uncertain


The container industry's surge in growth through nearly four decades is grinding to a halt as the global economy restructures and a number of key factors are altering global value chains (GVCs) according to the world's largest and arguably most successful liner shipping company.

In a process it calls reshoring or near-shoring, Maersk says that there are a number of macro-economic factors that are encouraging manufacturers to shift their production centers back to Europe and the U.S.

These factors include an increase in labor costs in emerging economies, and increasing digitalization "could restore the competitiveness of mature economies, thereby discouraging further offshoring," said Maersk.

Among the reasons the overall costs of international trade will likely increase are: lengthy supply chains; the necessity to balance cost efficiency with the increasing barriers to trade; the costs associated with meeting climate change targets; and the environmental impacts of international transportation.

Don't miss it. Register today .

Don't miss it. Register today.

"If these trends persist, they will re-shape the future evolution of GVCs," said Maersk.

The company went on to point out that assessing the impact of these changes to the global patterns of trade is a complex problem. At the same time, the Organisation of Economic Co-operation and Development (OECD) has simulated how global supply chains could evolve using a number of variables.

Following these predictive scenarios through to their logical conclusion, the OECD believes that trading patterns will show significant changes over the long-term and those changes could mean little increase in global trade and its share of the global output.

Maersk pointed out, however, that "It is worth noting that even under these circumstances, global container volumes would increase by 18-23 million forty-foot equivalent units over the next 10 years (assuming low annual global GDP growth of 2.0-2.5 percent). This is equivalent to a new Maersk Line and Hamburg Süd entering the container market."

In an attempt to maintain the container industry's position in GVCs, liner shipping companies are looking to offer integrated, door-to-door services and to reduce the environmental impact of container shipping.

Learn more today

Learn more today

According to Maersk this will have a positive impact on the robustness of GVCs, making international markets more accessible to small- and medium-sized companies across the world.

Maersk believes it is the market leader in these initiatives, with the company developing its policy of becoming an integrated business through a process of digitalization. Maersk is also divesting its non-core businesses, such as Maersk Drilling, which the company announced today (February 21) would be floated on the NASDAQ index in Copenhagen, Denmark, and separated from the Maersk's business on 2 April if shareholder approval is given.

"In 2018, we made significant progress in implementing our strategy. With the expected demerger and listing of Maersk Drilling in April, the separation of our energy-related businesses will be almost complete. We have successfully integrated Hamburg Süd, accelerated our digital transformation and come together across sales, customer service, delivery and products as one company with customers at the center of our attention. We are starting to see growth both in Ocean and non-Ocean segments," said Søren Skou, chief executive officer of A.P. Moller-Maersk.

The company's container market growth for 2019 is expected to average between 1 to 3 percent with capital expenditure estimated at $2.2 billion.

However, the company pointed out that, "Maersk's guidance for 2019 is subject to considerable uncertainties due to the current risk of further restrictions on global trade and other factors impacting container freight rates, bunker prices and foreign exchange rates."

Learn more today

Learn more today

Want more content like this? Click here to Subscribe


See more from Benzinga

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.