A.P. Moller-Maersk Recent Earning Call predicts normalization of rates in the 2nd half of 2022 while predicting same profit earnings as 2021.
Posted on March 7, 2022
Written by broussard_press
Do market conditions support that prediction?
From the A.P. Moller-Maersk Earning Call 09FEB22.
A.P. Moller – Maersk expects the current market situation to continue into Q2 2022 with a normalization to occur early in the second half of the year.
What does this mean to your supply chain and landed costs? Can you count on that prediction to plan for the last half of 2022?
After all, there are regulatory pressures coming from the Chinese and U.S. maritime agencies as well as anti-trust questions coming from the European Union. All 10 of the global carriers are paying attention to these inquiries and do not want any additional attention. One would believe that would at least maintain or slow the announced increases. In fact, the rates have been reduced by 9% since the beginning of 2022.
Despite these developments, the overall market conditions do not support A.P. Moller’s contention that rates will be reduced in Q3. To make any type of prediction in such an uncertain world is circumspect at best. No prediction can be foolproof in such an uncertain market and global upheaval. From war in Europe, historic inflation and worsening congestion, the upward trend of supply chain costs is not going to be reduced any time soon and certainly not in 2022.
The timing of this doesn’t match decades long trends and in fact Q3 is the busiest quarter of the calendar since containers became the preferred mode for ocean transport. Peak Season is at “peak” in Q3.
That same Peak Season will come much earlier this year and begin 90-120 days earlier than the traditional July ramp up. Customers learned from their mistake last year and ordered earlier than ever for 2022.
As mentioned earlier, the current market is limited to 10 global carriers. Going back to 2018-2019 those same carriers began to work more closely together to control both space and rates. While Covid-19 made the price increases more dramatic, the stage was set in the years leading up to that crisis. With blank sailings and other strategies to keep the rates at higher levels there is no reason to believe that will change in the 2nd half of 2022.
Additionally, ocean carriers want to control your total supply chain transaction. On this very day, A.P. Moller-Maersk announced the purchase of final mile and domestic network carrier, Pilot Freight Services. After reporting profits of 2.9 billion, they will continue the process of consolidation and this will further limit your logistics options in the coming years.
A.P. Moller-Maersk Earning Call 09FEB22
“We will continue these efforts as we see the current market situation persist into Q2. At the same time, we see conversations with customers change from procurement-led freight rate discussions to more holistic conversations on how we truly partner to keep supply chains running end-to-end. This clearly validates our strategy.”
As an additional factor to support rising rates, we are already seeing historic congestion in East Coast U.S. port like New York and Charleston and it is only February. No one believes that will lessen as Spring progresses.
As we have seen with the recent events in Ukraine, this could all change with any dramatic shock to the global economy (pandemic, war etc.) but if all remains the same, the market does not support a case for reduced pricing in Q3 and Q4 of this year.
Despite all the bad news for importers, there are tools available to your organization that can push revenue back to your bottom line. The carriers are as overwhelmed and understaffed as other sectors of the economy. This situation provides opportunities to recover erroneous charges through a post audit of your ocean charges. During these times of rising costs this can be a valuable service in getting every amount that is due to your organization. This service is just one of many that may be available for you to access and recover some of these high charges.
While many companies have full time staff that are experts in managing their supply chain, many small organizations can benefit from services provided by professionals to recommend way to both reduce future costs as well as recover overpayments. Find out which of these your company falls under and be proactive. The market is changing faster than ever and there are no indications those changes will slow in the near future.