Maersk to Reduce Headcount by 10,000 Amid Challenging Market Conditions
A.P. Moller-Maersk has announced plans to cut its workforce by 10,000 employees due to challenging market conditions in the ocean shipping industry as the pandemic-fueled bubble in container shipping bursts. The container shipping giant is facing lower freight rates and volume, which have prompted the need for cost-cutting measures.
In its financial results for the third quarter of 2023, 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.
Vincent Clerc, CEO of Maersk, acknowledged the challenges faced by the industry and emphasized 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,” Clerc said. “Since the summer, we have seen overcapacity across most regions triggering price drops and no noticeable uptick in ship recycling or idling.”
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. This reduction will be carried out in the coming months and into 2024, bringing the global workforce below 100,000 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.
Maersk’s financial guidance for 2023 indicates a revised global container volume growth range of -2% to -0.5%, with the Ocean division expected to grow in line with the market. The company anticipates its results to be towards the lower end of the previously communicated ranges for underlying EBITDA and underlying EBIT. However, the guidance for free cash flow remains unchanged at a minimum of $3.0 billion.
Maersk will provide further guidance for 2024 on February 8, 2024, as part of its Annual Results release. The company expects restructuring costs of $350 million, with the majority to be recognized in 2023. The cost-saving measures are projected to reach approximately $600 million in 2024 compared to 2023.
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