The CEO of shipping behemoth Maersk, which is seen as a gauge of international trade, stated on Wednesday that the company is not seeing any indications of a U.S. recession because freight demand is still high.
“In recent years, the shipping container market has surprisingly remained resilient despite widespread concerns about potential recessions, Vincent Clerc told CNBC’s ‘Squawk Box Europe’ on Wednesday. He added that container demand is often a strong indicator of overall macroeconomic health.”
U.S. inventories—goods stored before delivery or processing—are elevated compared to the start of the year, but they do not reach a concerning level or suggest an imminent major slowdown, Clerc stated. However, he did acknowledge some unpredictability in the figures for companies restocking their supplies.
“We also review purchase orders from numerous retailers and consumer brands that need to import goods into the U.S. for the upcoming month. The data and indicators suggest that demand remains strong, reflecting continued confidence that current consumption levels in the U.S. will persist.”
Concerns about a recession in the largest economy in the world, the United States, have unexpectedly increased during the past week due to a set of job data that was lower than anticipated and caused confusion among analysts and market players.
According to the most recent data from the U.S. Census Bureau, retail trade inventories in the United States, a gauge of undesired build, increased by 5.33% to $793.86 billion in May compared to the same month last year.
According to a report released by the leasing platform Container xChange on Wednesday, there are signs that stockpiles are more than demand, which could lead to a less “prosperous time” for retailers who store, the logistics industry, and container traders in the upcoming months.
According to Maersk’s Clerc, the company has been astonished by how resilient container volumes have been over the past few years and anticipates this trend to continue in the upcoming quarters, with no signs that the world economy is approaching a recession.
He stated, “As the global share of containers originating in or heading towards China has increased, Chinese exports have been the engine behind strong container volumes.”
The Danish company’s forecast for 2022 was noticeably more dire, citing the potential for inflation to slow consumption, the possibility of a worldwide recession, the European energy problem, and the conflict in Ukraine.
These elements worked together to lower freight rates in 2023, which severely hurt Maersk’s earnings.
This year, that trend was somewhat reversed due to escalating geopolitical tensions in the Red Sea, which prompted shipping companies to reroute trade around the southern coast of Africa. This change increased journey times and reduced capacity in the global shipping system.
Red Sea to cause further inflation
Red Sea diversions, according to Clerc, should last at least until the end of the year, he told CNBC on Wednesday.
That naturally requires increased capacity and more ships to handle global trade, which has led to some shortages in the second and third quarters that we are currently addressing,’ he said.
‘This means, in the short term, higher costs, and we have had to absorb significant expenses as a result, including the need for additional ships and containers to meet expectations.
He went on to say that if the current state of affairs continues, Maersk will have “significant inflation” in its cost base, which it will have to pass on to consumers. The cost increase for routes from Asia to Europe or the U.S. East Coast would be between 20% and 30%.
According to Clerc, the Danish shipping giant’s margins have benefited in the near term from capacity restrictions, which have resulted in three profit upgrades in recent months.
On Wednesday, Maersk revealed a drop in revenue to $12.77 billion from $12.99 billion and a year-over-year underlying profit of $623 million from $1.346 billion in the second quarter.
Although weaker year-over-year, the company reported that ocean freight margins were significantly better compared to the first quarter of 2024 and the fourth quarter of 2023, with earnings before interest and taxes margin of 5.6% compared to -2% and -12.8% in those earlier periods.
Maersk shares were down 1.6% at 12:45 p.m. in London on Wednesday.
