Shipping giants plummet: the “Red Sea price increase” is only temporary; the “surge in capacity” is a reality

wallstreetcn ·  Feb 9 01:33

Maersk CEO said that although the Red Sea crisis caused immediate capacity restrictions and temporary rate increases, eventually excess shipping capacity will cause price pressure and affect Maersk's performance.

The rise in Red Sea freight rates is only a short-term phenomenon. Shipping capacity is oversupplied. Shipping giant Maersk's performance declined, and overnight it plummeted by nearly 20% in the intraday period.

Overnight, Maersk released earnings reports. Last year's revenue fell by more than 30%, predicted a profit drop of up to 90% in 2024, and announced the suspension of the stock repurchase program.

Specifically, the company predicts that profit before tax (Ebitda) may be between $1 billion and $6 billion in 2024, far lower than last year's $9.8 billion, and the company's profit reached an astonishing $36.8 billion in 2022.

Meanwhile, Maersk said that due to increased uncertainty, the board of directors has decided to immediately suspend the share repurchase program. Once conditions in the shipping market stabilize, it will re-evaluate and initiate a repurchase, causing the stock to plummet overnight.


Shipping costs have soared due to the recent Red Sea crisis, and the world container index has risen 170% since the beginning of November to reach $3785.82 per 40-foot container on Thursday.

However, in the face of weak global trade, additional freight capacity is about to enter the shipping market. Meanwhile, the Red Sea crisis factors driving up shipping rates and stock prices can easily prove to be short-lived.

Maersk made it clear that the Red Sea problem only affected one-third of the company's shipping volume. As new shipping capacity ordered during the pandemic's trade boom arrives, it will overwhelm the headwinds brought about by the Red Sea crisis. According to Maersk's estimates, even if the Red Sea problem continues for a year, freight rates will return to pre-disrupted levels as a record number of new ships are delivered to use.

Looking ahead, Maersk expects container shipping to face a “major oversupply challenge” in 2024, and the impact may extend to 2026. Maersk predicts that the company's global container trade will grow by 2.5% to 4.5% this year, which is equivalent to 11% of the current fleet's capacity entering the market.

Maersk's CEO Vincent Clerc wrote in a statement:

Although the Red Sea crisis caused immediate capacity restrictions and temporary rate increases, eventually excess shipping capacity will put pressure on prices and affect our performance.

Analysts said the outlook for 2024 looks more challenging than 2023, as excess ship supply peaked, and Maersk's contract revealed that the company had limited benefits from increased spot rates after avoiding the Red Sea route.

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