August 15, 2019 / 6:26 AM / 2 months ago

Maersk warns trade war could hurt container business

COPENHAGEN (Reuters) - A.P. Moller-Maersk (MAERSKb.CO) warned a trade war between the United States and China could curb container traffic this year after the world’s largest container shipping company beat second-quarter profit expectations.

Maersk said the escalating trade dispute between Washington and Beijing could limit growth in global container traffic to the lower end of its 1% to 3% guidance range this year, after growth of around 2% between April and June.

Newly imposed tariffs between the United States and China combined with additional U.S. tariffs due to be implemented later this year could remove up to 1.5% of global container demand in 2020, Maersk said.

However, Chief Executive Soren Skou remained upbeat.

“It is not tariffs that decide how many goods are being transported, but rather how much Americans buy when they go to Walmart. Luckily for us, the U.S. consumer is still in a good mood,” Skou told a media briefing.

He said Maersk had seen “solid progress” in the second quarter, including realizing synergies of $1 billion from restructuring earlier than expected.

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 17% to $1.36 billion, topping the $1.24 billion forecast by analysts in a Reuters poll.

Maersk benefited from higher container freight rates, larger volumes and lower costs and said it still expects EBITDA for the full year to total $5 billion. Analysts on average expect EBITDA of $5.4 billion for 2019.

The shares traded as much as 7% higher in early trade, but were trading 2.5% lower at 6,808 crowns each at 1027 GMT.

“The results were good, but in a market where concerns over the global economy are escalating, investors are not going to reward a cyclical stock like Maersk,” said Frans Hoyer, analyst at Handelsbanken.

Some investors may have been disappointed that Maersk did not raise its full-year guidance despite a good result for the first six months.

“It looks like consensus was running ahead and some had seen Maersk’s guidance as conservative,” Hoyer said.

“But I think it would be crazy to lift guidance in this environment,” he said.

Skou said he was planning for low growth in container shipping demand this year and next but not recession.

“Some expect a recession in the United States. We doubt it will happen this year or next,” Skou said.

“We wake every morning to new tweets from the U.S. president. Now tariffs have been canceled on all the consumer goods that will be in demand during Christmas shopping. Those are the goods we ship, so now we’re a bit more optimistic,” he said.

FILE PHOTO - The Maersk Line container ship Maersk Sentosa is helped by tugs as it navigates the River Mersey in Liverpool, Britain, July 31, 2018. REUTERS/Phil Noble

Skou has overseen a major shift in Maersk’s strategy, which has included selling off its oil and gas business to focus on the container and logistics business for customers which include Walmart and Nike.

While Maersk moves around one in five containers shipped at sea, it handles the land transportation from ports to warehouses and distribution centers for less than a quarter of its customers.

Maersk’s share price has fallen 43% since a peak in July 2017 and now trades around the level it was at when Skou took on the CEO job in June 2016.

Reporting by Jacob Gronholt-Pedersen; editing by Elaine Hardcastle

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