The chief executive of shipping giant Maersk, a barometer of global trade, said on Wednesday that the company sees no signs of an economic recession in the United States as demand for shipping remains strong.
“We’ve seen over the last couple of years, actually, that the (shipping container) market has been surprisingly resilient in the face of all the fears of a recession,” Vincent Clerc told CNBC’s “Squawk Box Europe” on Wednesday, adding that demand for containers has generally been a good indicator of the underlying overall economic strength.
U.S. inventories — goods that are stored before delivery or processing — “are higher than they were at the beginning of the year, but not at a level that is worrisome or that seems to indicate a significant slowdown in the near future,” Clerk said, though he noted some unpredictability in the numbers of companies replenishing stocks.
“We also look at the purchase orders from a number of retailers and consumer brands that need to import into the US for the next month of demand, and it looks like it’s still very strong… At least the data and indicators that we have seem to indicate a good level of confidence that the current levels of consumption in the US will continue.”
Last week saw a sudden escalation in recession fears in the world's largest economy, the United States, following a batch of weaker-than-expected jobs data that divided economists and market participants.
U.S. retail inventories — a measure of unwanted construction — rose 5.33% in May from a year ago to $793.86 billion, according to the latest release from the U.S. Census Bureau.
Indications are that inventories are higher than demand, meaning a “less prosperous time” in the coming months for container traders, the logistics market and retailers who have stockpiled goods, a report by leasing platform Container Exchange said on Wednesday.
Clerc said the company had been surprised by the resilience of container volumes over the past few years, and added that it expected that to continue in the coming quarters – with no sign that the global economy is heading into recession.
He added that Chinese exports were the driver behind the strong container volumes, with the global share of containers coming from or going to China increasing.
In 2022, the Danish company had a significantly more pessimistic outlook, warning of falling demand due to inflation, the threat of a global recession, the European energy crisis, and the war in Ukraine.
A combination of these factors has led to lower freight rates in 2023, leading to lower profits for Maersk.
That trend has partially reversed this year amid rising geopolitical tensions in the Red Sea, which have prompted shipping companies to divert trade routes around the southern coast of Africa — lengthening voyage times and straining the global system’s capacity.
Red Sea may cause more inflation
Clerc told CNBC on Wednesday that he expects the Red Sea diversions to continue at least until the end of the year.
“That of course requires more capacity, more ships to move global trade around the world, and that created some shortages here in the second quarter and in the third quarter that we're dealing with right now,” he said.
“This means, in the short term, higher costs, and we have had to bear a significant cost as a result, both in terms of needing more ships and needing more containers to do the job expected of us.”
If the situation persists, Maersk will see a “significant increase” in its cost base that it will need to pass on to customers, with the cost of routes from Asia to Europe or the US East Coast rising by 20% to 30%, he added.
The short-term impact of energy constraints has been positive for the Danish shipping giant's margins and has led to three earnings upgrades in recent months, Clerk added.
Maersk on Wednesday reported a year-on-year drop in core profit to $623 million from $1.346 billion in the second quarter, and a drop in revenue to $12.77 billion from $12.99 billion.
While weaker year-over-year, the company said ocean freight margins were “significantly better” than in the first quarter of 2024 and the fourth quarter of 2023, with an EBIT margin of 5.6% versus -2% and -12.8% in those prior periods.
Maersk shares were down 1.6% at 12:45 p.m. in London on Wednesday.
