High shipping costs are pushing inflation higher in the U.S. and elsewhere, and it looks as if they are not going away anytime soon.
A.P. Moller-Maersk A/S (ticker: MAERSK.B. Denmark), the largest shipping company in the world, reported record earnings on Tuesday. It made so much money in the quarter, that its net income in the three months was higher than any full year in the company’s history.
And the company said it was expecting ocean freight rates, which have tripled over the past year, to stay high. Maersk’s momentum looks likely to last at least into the first quarter of 2022.
“We now expect a first quarter more or less in line with the fourth quarter as demand remains strong as far out as we can see in our booking data,” CEO Søren Skou said on the company’s earnings call.
While the volumes of ocean freight that the company shipped were flat in the quarter, its ocean freight revenue was up 84% because of higher rates. Maersk stock is up 50% this year.
The shipping backlog is caused by several factors. Demand for goods has surged, particularly in the U.S., because households have more cash than they have had in years. But ports have not been able to keep up, in part because of a labor shortage. There aren’t enough employees like truckers to take all the goods from ports to warehouses and stores. So ships are sitting in ports for extended periods waiting to be unloaded.
Skou said that Maersk was doing everything it can to speed things up at ports. “Frankly, anything that can sail is out sailing today, and we have also increased the average speed of our vessels,” he said.
In addition, Maersk has expanded the gate capacity at terminals, opened new warehouses, and added express truck lanes. Still, “ship capacity is to-date tied up waiting outside ports at a time when demand is very strong.”
For Maersk, the high rates have fattened its bottom line, but the company also saw higher costs and says it is trying to sign more long-term contracts so it won’t be at the mercy of the volatile spot shipping market.
President Biden has stepped in to try to speed supply chains up, including by announcing that the Port of Los Angeles will start operating 24 hours a day 7 days a week. But it’s not clear whether those actions will fully clear up the problem, given the scale of the logjam.
Even as Maersk profits, other companies are struggling to get goods to customers.
“There is strong demand for our brands, but we were unable to fulfill approximately $100 million of product we had orders for during the quarter,” said Hasbro (HAS)’s chief financial officer, Deborah Thomas, on the company’s earnings call on October 26.
With the holidays approaching, Maersk looks likely to continue minting profits. The question now is how far into 2022 this problem lasts.
Write to Avi Salzman at [email protected]
