Maersk’s profits plummet as Houthi attacks on the Red Sea take their toll

AP Moller Maersk has seen profits plummet as the shipping industry calculates the costs of disruption caused by Houthi incursions into the Red Sea.

The world’s largest shipper said the expected losses would be lower than originally estimated as the global supply chains grew accustomed to higher shipping rates and longer travel times due to vessels diverting around Cape of Good Hope. The company reported that despite the disruptions, volumes are trending higher than anticipated.

Maersk’s operating profit before interest and taxes for the first three months of this year was $177 million. This is down from $2.3billion in the same period last year. The Red Sea losses that were reported in 2023’s final quarter have now been compounded. The revenue for the first quarter of 2024 dropped by $1.9 billion or 13% to $12.4 billion.

The Red Sea Crisis began in October last year when Yemeni Houthi Rebels launched armed drones and missiles against merchant and naval ships, and sometimes seized vessels. The Houthis, who are backed by Iran, have claimed that their attacks were a result of Israel’s invasion of Gaza.

Due to the effective blockade on the Bab al-Mandeb – the gateway to Red Sea and Suez Canal – for vessels traveling between China, India, and the east, to Europe and west – the global merchant fleet has been diverted around the south of Africa. This can add up to two weeks to journey times.

Maersk does not see an end to the disruption. The company said that while its vessels lost money on their voyages at the end last year, they are now operating on average profitably.

The picture is a little blurred due to the increasing number of ships that are coming onto the high seas. This increased capacity will affect the rates that shipping companies can charge.

Maersk stated in a press release: “With the Red Sea Crisis still continuing, plans have been made to extend the current reroutings south of Cape of Good Hope for the remainder of this year.”

It stated that it “expects to see overcapacity prevail which will result in lower rates during second half”. Maersk has raised its financial guidance to include a range between breakeven to a loss up to $2 billion. The strong container market, and Red Sea disruption are likely to continue into the second half. Maersk had previously estimated that it would suffer losses up to $5 billion.

News of the news kept AP Moller Maersk shares, valued at approximately PS20 billion, under pressure. They fell by 4% in Thursday’s trading. Stocks have fallen by 30% since the beginning of the year, and were trading near a four-year low in March.

Vincent Clerc has been the chief executive officer of Maersk since the last 15 months. He said: “We have had a good start to the new year, with the first quarter progressing exactly as we anticipated.”

In a press release, he stated that “conditions at the Red Sea are entrenched”, but also added that “demand is moving towards the upper end of our growth guidance for the market.” The first quarter was a rebound from the previous one, and this has improved the outlook for the next quarters.

The high number of new ships expected to be delivered this year and next will eventually offset these factors, putting the ocean markets back under pressure.