The massive earnings continue for Maersk, which has brought more customers over onto long contracts. There is a limit to the amount, though, said CEO Søren Skou.
Increasingly, customers choose long contracts at Maersk, adding to the Danish shipping group’s earnings from the extraordinary freight market.
Despite a decline in volumes and increased costs from inflation and bunker prices, earnings soar vigorously in Maersk’s crucial Ocean business, which benefits from the high freight rates.
The progress is most of all anchored in Maersk bringing more customers over onto long contracts.
”The good Q1 result combined with the fact that we to a significant degree have been able to raise prices through negotiation on our long-term contracts by USD 1,400 per FFE mean that our top line alone, due to the contract prices, increases by USD 10bn this year compared to last year,” said Maersk CEO Søren Skou at a press meeting Wednesday.
We need some flexibility, therefore I don’t expect us to move beyond 80%
SØREN SKOU, CEO, MAERSK
So far, Maersk has been able to move 71% of customers onto long contracts, added the top exec.
There is, however, a limit to the further increase of the amount.
”We probably expect a limit of roughly 80%. Contract freight needs to be taken into account, so we need some flexibility, therefore I don’t expect us to move beyond 80%.”
Very high customer satisfaction
Maersk’s record result in the first quarter is another manifestation of the extraordinary situation that continues to affect supply chains, and which has sent earnings skywards among the world-leading container lines.
Although volumes in Ocean dived by 6.7% in Q1, which had higher costs as well, Maersk saw an average freight rate increase of 71%.
The figures from Maersk and the other container carriers thus testify that customers are still paying significantly larger sums than previously in order to have their goods carried around the world.
Maersk’s 2022 guidance
Source: Maersk’s upgrade on April 26
Last week, this made former head of logistics at Electrolux Bjørn Vang Jensen say that customers may want a ”serious talk” with their carriers if the trend with contract rates exceeding spot rates continues.
”Serious talk” awaits transportation companies if high prices continue
However, at Wednesday’s press meeting, Skou rejected the existence of dissatisfaction among Maersk customers despite the markedly higher freight bills. On the contrary, Maersk’s ”customer satisfaction is consistently at a very high level,” he said.
”We don’t see any wide-spread customer dissatisfaction, quite the contrary,” added the chief exec.
A new level
Looking at 2022, Maersk expects normalization in the strained supply chains to occur during the second half-year.
However, the question is what normalization actually means.
According to Skou, it doesn’t mean that carriers will find themselves back in the situation that characterized the industry in the years prior to the Covid-19 pandemic.
We are coming out of the commodity trap we had been caught in, in which everything was about ship sizes and costs
SØREN SKOU, CEO, MAERSK
”We are not solely dependent on supply and demand anymore. And we are coming out of the commodity trap we had been caught in, in which everything was about ship sizes and costs,” stated Skou, adding:
”This means a more stable income at a higher level than what has been the case historically. That is our expectation.”
However, the expectation is not due to the pandemic, explained the top exec. Instead, he pointed to several things that have happened in the industry in recent years. For instance, there are fewer dominant players.
”Ten years ago, there were 20 carriers considered global. Now, there are seven. At the same time, these seven work together in capacity alliances, making it easier for us to adjust the capacity to the existing demand. A lot has happened on the digital side, meaning we can sell different products to different customer types,” said Skou.
Maersk has taken part in the consolidation via the acquisition of German carrier Hamburg Süd.
English edit: Kristoffer Grønbæk
Maersk presents record earnings despite lower container volumes
