Industry might come out of 2020 without a loss

As the latest in a line of shipping companies, Maersk declares that the coronavirus does not seem to have impacted container freight as hard as first feared, creating hopes that container lines can avoid a combined loss in 2020, and that the bottom has been reached, assess analysts.

Maersk's surprising statement that the drop in volumes seen in the second quarter will be smaller than first expected is creating optimism on behalf of the industry for the full year.

As the latest in a line of carriers, Maersk declared on Wednesday that the coronavirus seems to not have hit container transport as hard as first feared.

Container lines had otherwise been expected to be seriously impacted by the coronavirus during the spring, when the virus spread from Asia and prompted shutdowns of several of the world's most important economies.

With its latest statement, Maersk falls in line with competitors Hapag-Lloyd and CMA CGM, creating hopes that container lines can avoid a combined loss in 2020.

"The carriers' approach to capacity management is clearly working, and the industry might actually come out of 2020 without a loss (collectively speaking, individual carriers might still see losses)," writes shipping analyst and CEO of Sea-Intelligence Consulting Lars Jensen on Linkedin.

Might have reached the bottom When Maersk presented its interim report mid-May, the carrier expected a drop in volumes of 20-25 percent in the second quarter.

But this estimate is now reduced to 15-18 percent for the period. For the same reason, Maersk expects the operating result (EBITDA) for the quarter to be slightly higher than in the first three months of the year, when operations before the cost of restructuring and adaptation came to USD 1.5 billion. In recent months, container lines have been voiding a record number of sailings to lower ship supply and keep freight rates afloat.

This seems to have worked to some degree, as rates on the key routes between Asia and Europe last week reached their highest level in 2020.

Broker firm Clarksons Platou assesses that the worst period for container lines could be over.

"We believe the 2Q volume decline will be the lowest point of the year, with improved volumes in 3q and 4q," writes Frode Mørkedal, head of equity research at Clarksons Platou, in an analysis.

Volumes more important than rates and fuel The broker expects container carriers to start gradually resuming sailings in the third quarter.

This could lead to declining rates concurrently with a beginning surge in fuel prices. "This could put slight pressure on margins again. That said, more importantly for Maersk and other liner companies is improved volumes, in our view," Mørkedal writes.

He expects Maersk to earn USD 1.7 billion on average in the two quarters of the second half-year.

Maersk CEO Søren Skou highlights the many sailings as key to performing in the current market.

"We have been able to navigate well in a very difficult second quarter, adjusting capacity to demand to maintain high utilization of our network and managing our cost across the company," Skou stated yesterday in connection with the update.

However, the coronavirus continues to create so much uncertainty that Maersk will still make no predictions as to the full 2020 result.

Maersk will present its second quarter financials on Aug. 19.

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