One of the largest shipping companies globally is set to cut an additional 3,500 jobs due to diminished freight rates and demand.
AP Moller-Maersk had previously reduced 6,500 positions earlier in the year as part of cost containment measures but deems further layoffs necessary. The company, known for transporting goods for major retailers like Nike, reported a staggering 92% decline in profits in its latest quarterly results, attributing the downturn to deteriorating sea shipping prices.
The surge in demand for shipping goods during the initial stages of the COVID-19 pandemic, when lockdowns lifted and businesses resumed trading, led to congestion and logistical challenges at UK ports. However, a subsequent increase in inflation and rising interest rates has curtailed spending, dampening demand. Maersk had already warned of a sharper decline in global demand for sea shipping containers earlier in the year.
Vincent Clerc, Maersk’s CEO, noted the “worsening” sea shipping prices and described the industry as facing a “new normal” characterized by subdued demand, historical price levels, and inflationary pressure on costs. The company anticipates that the job cuts will result in £600 million in savings next year. The global workforce is expected to dip below 100,000, with 2,500 job losses in the coming months and the remainder in 2024.
Maersk, controlling approximately one-sixth of global container trade, has seen its staff reduced from 110,000 to about 103,500 earlier this year. The company’s latest financial results indicate a significant slowdown in the global economy, making it a noteworthy economic indicator. Pre-tax profits for the three months ending September plummeted to $691 million compared to $9.1 billion in the same period last year, with sales dropping from $22.7 billion to $12.1 billion.
According to Russ Mould, investment director at AJ Bell, Maersk’s situation is exacerbated by overcapacity in the industry, which benefits those paying for transportation but poses challenges for ship owners and operators. The cost of shipping has significantly decreased, as noted by Garry Grant, founder of The Entertainer toy company, who highlighted a collapse in freight costs over the past six months. Maersk’s shares fell by 11.1% following the release of its financial results, prompting the company to maintain cautious expectations for revenue and profits, anticipating potential challenges from a slowing global economy and geopolitical tensions.