Danish shipping giant Maersk forewarned on Thursday that container shipping overcapacity would damage profits more than anticipated this year and that it didn't see a major impact from the rise in freight rates tied to Red Sea disruptions, hammering its shares.
The warning, which also led the company to suspend its share buyback program, is in stark contrast with investors' recent optimism about the sector.
Container shippers have been among the best-performing stocks in Europe so far in 2024 as the re-routing of vessels following attacks on shipping by Iranian-backed Houthi rebels in the Red Sea – a major trading route – boosted freight rates.
Maersk, like other shippers, has been diverting some vessels on a longer route around Africa, and some analysts had expected longer journey times and higher freight rates would outweigh a big increase in new container ships joining the market.
However, Maersk CEO Vincent Clerc told reporters in Copenhagen that the Red Sea crisis did not match the scale of the bottlenecks caused by the pandemic, which boosted shippers' profits, and that Maersk did not expect a major impact.
Instead, the company said it expected "significant oversupply challenges" in container shipping to materialize fully during 2024, and be felt in 2025 and possibly into 2026.
The pandemic boost to shipping profits in 2022 resulted in a wave of new vessel orders.
"The outlook for 2024 appears even more challenging than 2023 in the Ocean division, as oversupply of vessels peaks and Maersk's contract exposure provides them limited benefit from spot rate increases following Red Sea diversions," Barclays analysts said in a research note.
Maersk's shares were down 14% at 1018 GMT, while those of rival Hapag-Lloyd fell around 8%.
Maersk, viewed as a barometer of world trade, said it expected underlying earnings before interest, tax, depreciation and amortization (EBITDA) of between $1 billion and $6 billion this year, compared with the $9.6 billion achieved last year.
"High uncertainty remains around the duration and degree of the Red Sea disruption with the duration from one quarter to full year reflected in the guidance range," it said in a statement.
Analysts in an LSEG poll are on average forecasting Maersk to post an EBITDA of $6.6 billion this year.
Maersk said EBITDA dropped to $839 million in the fourth quarter from $6.54 billion a year earlier, lagging analysts' expectations of $1.13 billion.
Sydbank analyst Mikkel Emil Jensen called the financial report "weak" and said the company's guidance indicated a net loss for 2024.
The company also suspended its share buyback program and said it would review the decision once market conditions in ocean container shipping had settled.