World's Biggest Shipping Company Already Feeling Pain from Trade War

Photo: Corine van Kapel / Shutterstock.com

By Frances Schwartzkopff (Bloomberg) — A.P. Moeller-Maersk A/S may struggle to make a profit this year after the U.S. and China descended into a trade war that promises to hurt the world’s biggest shipping company.

Maersk, which is based in Copenhagen, has already lost almost a third of its market value this year as investors gird for more bad news. Trade protectionism means less demand, and history suggests the shipping industry will struggle to make the necessary supply cuts. What’s more, Maersk is now more exposed to shipping as the former conglomerate divests its energy business.

Per Hansen, an investment economist at Nordnet in Copenhagen, says Maersk is currently “in the eye of the hurricane” when it comes to the damage that will be inflicted by a trade war. He estimates the company’s shares could drop at least 10 percent.

Maersk is already bracing itself for lackluster demand in the second half of the year, due to what it says are seasonal effects. The company said earlier in the week it will need to temporarily scale back its service between Asia and North Europe as a result.

“It’s highly likely that Maersk’s valuations could sink to its trough valuations in the coming months as investors avoid shipping stocks until more excess capacity is being removed,” said Corrine Png, chief executive officer and founder of Crucial Perspective, a Singapore-based research provider focusing on transport.

She says that, given all the moving parts, it will be “harder for Maersk to pass on the higher bunker fuel costs effectively compared to last year, raising the risk that Maersk can only be marginally profitable, at best, or even turn loss-making for the full financial year.”

“Maersk is the second-largest carrier in the Far East-North America trade lane, with 15 percent market share, so falling China exports to the U.S. due to tariffs will hurt Maersk’s financial results going forward,” Png said.

A number of analysts have cut their outlook on Maersk recently. Kepler Cheuvreux lowered its share price target by 9 percent last week to 12,000 kroner. Jefferies reduced its price target by 12 percent to 11,500 kroner. Even so, of the 28 analysts covering Maersk, only one is recommending that clients sell the stock. The rest advise either buying or holding on to Maersk shares, according to data compiled by Bloomberg.