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Maersk Believes Container Shipping Demand Will Decline Significantly

Shipping Demand

EDITOR NOTE: There’s a reason why the Dow Jones Transportation Average index came into being: a healthy economy sees goods being transported across the nation. On a global scale, we look to various forms of transportation and storage across air, sea, and land. According to Maersk, a Danish shipping company, demand is significantly declining. Using the same logic that Charles Dow followed back in 1884, what does the current decline tell us about the near-term state of the economy?

Maersk, the world’s largest container shipping firm, beat second-quarter profit expectations on Wednesday and said it expects demand to pick up in the third quarter, but warned of a “significant decline” across the year.

Despite being negatively impacted by a “sharp drop in volumes” in the second quarter, with revenues falling 6.5% from the same period last year as the global economy was brought to a standstill by the coronavirus pandemic, Maersk upped its full-year guidance on Wednesday.

The Danish company reported a 25% rise in second-quarter EBITDA (earnings before interest, tax, depreciation and amortization) to $1.7 billion, outstripping the $1.575 expected by analysts in a Refinitiv poll.

Maersk, often seen as a bellwether for global trade, now projects 2020 EBITDA of between $6 billion and $7 billion, up from initial guidance of $5.5 billion.

The fall in revenue was attributed to a decrease of 16% in the company’s Ocean division and 14% in gateway terminals, which Maersk said was “partially offset by increased freight rates and increased revenue per move in Terminals.”

Maersk shares gained 5.4% in early European trade.

“As a result of the lock-downs, closed borders and travel restrictions around the world, we experienced significant problems in relieving our seafarers when their contracts expired, a persistent issue of serious concern to us, which we are proactively addressing,” CEO Søren Skou said in the earnings report.

Cash return on invested capital (CROIC) increased by 3.6 percentage points to 12.5%, and Skou said the earnings report and balance sheet indicated that Maesk was “well positioned to financially and strategically come out stronger of the crisis.”

Originally posted on CNBC

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