Maersk, CMA, Hapag-Lloyd and other shipping lines face challenges

In 2024, European shipping companies have no choice but to navigate a market filled with uncertainties and challenges. Since the beginning of the year, major European shipping companies such as Maersk, CMA CGM, and Hapag-Lloyd have faced significant challenges, primarily due to declining freight rates, geopolitical instability, and rising operational costs.

Geopolitical instability, particularly the ongoing Houthi attacks in the Red Sea, has forced many shipping companies to reroute around the Cape of Good Hope, significantly increasing sailing distances and operational costs.

Despite these challenges, BIMCO’s June 2024 report noted that this rerouting has inflated global demand by 15%, especially for large container ships engaged in trade between the Far East and Europe, exacerbating capacity constraints. These longer routes have driven up the cost per 40-foot container from $1,800 to $3,400. The report also highlighted that rerouting via the Cape of Good Hope could affect the entirety of 2024, and if vessels return to the Suez Canal, ship demand in 2025 could decline by 5%.

This pressure is evident in both the container and freight markets. Container freight rates, as represented by the SCFI, have surged by 76% over the past six months, reaching 85% of their performance level. The ClarkSea Index remains relatively high, but freight rate forecasts for 2025 indicate potential volatility, particularly as new ship deliveries are expected to increase fleet size by 23% over the next four years.

Additionally, despite rising fuel costs, ships are racing to meet demand, and with increased sailing speeds, fleet supply is projected to grow by 9.6% by the end of 2024.

Denmark’s Ship Finance company has also emphasized how geopolitical tensions and infrastructure inefficiencies have driven demand, even though these factors mask underlying issues like market overcapacity. BIMCO and Denmark’s Ship Finance company, in their May 2024 assessments, forecast that global container throughput will grow by 4.1% in 2024, with intra-Asia trade contributing one-third of that growth.

European shipping companies will face a turbulent market environment in 2024. The long-term outlook for the container shipping industry remains uncertain, as freight rates may come under pressure due to overcapacity, potentially leading to further downward pressure on rates. Since freight rates are the primary revenue source for shipping companies, fluctuations directly impact profitability and viability.

With growing global awareness of environmental protection, governments are introducing stricter regulations to combat climate change and reduce pollution. For the shipping industry, this means adopting more eco-friendly ship technologies, fuels, and operational methods, which will inevitably increase operating costs for shipping companies.

Moreover, digital transformation has become a crucial pathway for the shipping industry to improve efficiency, reduce costs, and enhance competitiveness. By leveraging advanced technologies such as big data, artificial intelligence, and the Internet of Things, shipping companies can achieve greater transparency, intelligence, and efficiency in their supply chains. However, these transformations require significant capital and technical investment, which may pose a considerable challenge for smaller or less technologically advanced shipping companies.

Ultimately, the resilience of these European companies will depend on their ability to adapt to the ever-changing geopolitical landscape, market fluctuations, and the growing demand for sustainability.

CMA CGM reported a 6.8% increase in revenue, reaching $13.1 billion, but saw its net income drop by more than 50%, totaling $661 million. The company’s EBITDA fell 4.3% to $2.48 billion. Despite these challenges, CMA CGM demonstrated adaptive strategies to handle major route disruptions and invested in decarbonization and digital transformation. The French shipping company’s container throughput grew by 6.8%, driven by strong global trade demand.

Hapag-Lloyd saw its half-year EBITDA and EBIT drop to around $2 billion and $900 million, respectively, from higher figures in 2023. However, due to unexpectedly strong demand and short-term freight rate increases, the German shipping company raised its earnings forecast, expecting 2024 EBITDA between $3.5 billion and $4.6 billion, and EBIT between $1.3 billion and $2.4 billion. The company remains cautious, highlighting the unpredictability of freight rates and the impact of geopolitical tensions.

AP Moller–Maersk also experienced a downturn, with second-quarter revenue falling from $21.7 billion last year to $13 billion, primarily due to lower freight rates and shipping volumes, particularly in the maritime sector. Nonetheless, the Danish shipping giant raised its financial outlook, reflecting effective cost management strategies and a focus on integrated logistics solutions. Amid market normalization and post-pandemic growth slowdown, the company is undergoing a transformation aimed at bolstering supply chain resilience.