Danish shipping giant A.P. Moller-Maersk has announced plans to cut its workforce by 10,000 employees in face of “worsening market conditions” that have become the “new normal.” The phased reduction into 2024 will bring the global workforce below 100,000 positions.
The current global shipping environment is marked by the bursting of the pandemic-fueled bubble. Lower freight rates and volumes have sparked the need for drastic cost-cutting measures.
Vincent Clerc, CEO of Maersk, stressed the company’s commitment to streamlining operations. “Our industry is facing a new normal with subdued demand, prices back in line with historical levels, and inflationary pressure on our cost base,” Mr. Clerc said. “Since the summer, we have seen overcapacity across most regions triggering price drops and no noticeable uptick in ship recycling or idling.”
In its 2023 Q3 financial result, Maersk reported revenue of $12.1 billion, a significant decrease from $22.8 billion in the same period last year. The company’s earnings before interest and taxes (EBIT) margin was 4.4%, impacted by the decline in freight rates and volumes. Consolidated EBITDA came in at $1.8 billion for the quarter, down more than 80% from the $10.8 billion in Q3 2022.
Maersk’s Ocean division reported a 9% increase in volumes compared to the previous quarter. However, the division’s EBIT was negative at $27 million, primarily due to significant pressure on rates, particularly on trades between Asia and Europe, North America, and Latin America.
The Logistics & Services segment also experienced a decline in revenue, with $3.5 billion compared to $4.2 billion in the third quarter of 2022. Lower prices in the air and haulage market contributed to this decrease, although volumes were relatively stable. Cost management efforts helped stabilize margins in this segment.
Maersk’s Terminals division reported revenue of $1.0 billion, driven by reduced demand for storage and a decline in volume. The division achieved strong results through price adjustments and cost measures, with a return on invested capital (ROIC) exceeding expectations at 10.3%.
To mitigate the impact of challenging market conditions, Maersk has implemented rigorous cost containment measures throughout the year. The company has already reduced its headcount from 110,000 in early 2023 to approximately 103,500 employees currently. However, given the worsening price outlook in the ocean shipping industry, Maersk plans to further decrease its workforce by 3,500 positions.
In addition to workforce adjustments, Maersk has taken decisive actions to contain costs, resulting in a projected decrease of $600 million in selling, general, and administrative expenses (SG&A) for 2024. The company has also adjusted its capital expenditure (CAPEX) for 2023 and 2024 and is considering further measures, including the continuation of the share buyback program into 2024.
(Photo of Maersk vessel near Port of Los Angeles)
