European shipping companies Maersk and Hapag-Lloyd are unlikely to benefit from rising freight rates due to the Red Sea crisis in the first quarter, heightening concerns about long-term overcapacity.
Spot freight rates tripled to nearly $3,500 per container after ships began avoiding the Red Sea due to attacks by Houthi militants, according to the Freightos Baltic Index. They have since fallen back to around $2,400.
According to Marc Zeck, an analyst at Stifel, this compares to the peak of $11,137 reached during the pandemic, when shippers ordered new ships, which then led to overcapacity.
Diverting ships around Africa uses this capacity, but the question is to what extent and for how long.
“Everyone thinks that the Red Sea crisis will end at some point. Once the crisis is over, ships will go through the Suez Canal and we will have overcapacity again,” Zeck said.
Echoing these comments, Alexander Irving, an analyst at Bernstein, said he expected the fleet to expand by 15% in 2024 and 2025, outpacing demand.
Maersk CEO Vincent Clerc told investors in February that about twice as many ships were coming to market than were needed to reroute cargo.
Hapag-Lloyd and Maersk gave very broad guidance for 2024, citing the uncertain impact of the Red Sea crisis on rates.
Hapag-Lloyd forecasts earnings before interest and taxes of between minus $1.1 billion and $1.1 billion, up from $2.5 billion in 2023. Maersk forecast annual EBIT of minus $5 billion to $0 , compared to a profit of $3.9 billion last year.
In February, Mr Clerc said higher rates could help Maersk break even in the first quarter.
However, it may be difficult to break even for the year, Mr. Zeck said, as the Red Sea crisis is expected to have its strongest impact in the first quarter before fading.
“At some point you have to have a positive number on the EBIT side to offset the negative numbers that are expected. I don’t know how they will achieve that,” Mr. Zeck said.
Maersk shares closed almost 15% lower on the day Mr Clerc made his bearish comments, and have fallen by a quarter from the post-crisis peak reached in early January.
They have lost more than 10% compared to December 15, when Maersk began interrupting its Red Sea voyages.
The January-March quarter is the first to take place entirely during the crisis and therefore the first opportunity to see what it means for shippers and their year ahead.
Maersk will report its first quarter results on Thursday, followed by Hapag-Lloyd on May 15. ($1 = 0.9381 euros) (Reporting by Jesus Calero and Louis van Boxel-Woolf in Gdansk; Editing by Milla Nissi)
