Maersk in Troubled Waters
The Danish shipping and logistics company has announced that it will be laying off 10,000 employees, almost 10 percent of its workforce.
Background: Maersk is one of the world’s largest shipping companies. With almost 700 container ships in its fleet, it carries roughly one-sixth of the world’s goods that travel by container ships.
The industry has also felt the impact of inflation. While costs have gone up, the demand for shipping has fallen as consumers rein back their spending.
- This is a contrast to just two years ago during the pandemic when online shopping boomed as people ordered everything online, from toilet paper to sweatpants. (Remember all the sweatpants?)
Some details: A couple years ago, supply chain issues were made worse by congestion at major ports, driving up shipping costs and leading to record profits for shipping companies. Maersk saw its operating cash flows increase 3x, jumping from $8.2 billion in 2020 to $24 billion in 2021.
And then: Logistics companies boosted their capacities to meet the increased demand. But as inflation hit and the economy slowed, there is now an oversupply of shipping vessels.
Maersk saw its profits drop by 94 percent compared to last year, the largest drop coming from its ocean transport division.
- Their marine shipping division posted a $27 million loss in the third quarter compared to a $8.7 billion profit over the same period last year.
Scanning the horizon: It might be choppy waters ahead for a while in the shipping industry as this slowdown is expected to last until 2026, according to the CEO of Maersk. This is reflected in consumer sentiment reports. Though it’s still possible that, with inflation dropping in some regions, there may be an increase in consumer spending again.