"Next Year Will Be Harder"... Container Industry on Alert Amid Announcement of 10,000 Job Cuts

Huge Profits During COVID... Backlash After the Trend
Demand Plummets, Maritime Freight Rates Fall 90% in a Year

As the COVID-19 pandemic subsides, the maritime container industry is facing an emergency. The once explosively rising sea freight rates are plummeting sharply due to a rapid decline in demand.

The Wall Street Journal (WSJ) reported on the 3rd (local time) that the shipping group A.P. Moller-Maersk will carry out a large-scale restructuring by laying off 10,000 employees. This is a response to the recent significant drop in revenue and profits caused by low freight rates and a slowdown in container shipping demand.

Founded in 1904 in Copenhagen, Denmark, Maersk consists of marine, logistics and services, terminals and towing, manufacturing, and other sectors. In particular, the marine division operated more than 700 vessels worldwide as of 2021, making it the largest container ship operator in the world.

The container industry, including Maersk, earned astronomical profits during the COVID-19 outbreak. This was due to global supply chain disruptions, congestion at major ports, and container shortages, which caused container freight rates to surge up to 10 times.

A.P. Moller-Maersk's ultra-large container ship 'Maersk Mc-Kinney Moller' [Image source=Yonhap News]

However, Maersk’s sea freight revenue in the third quarter of this year fell by 56% compared to last year, and profits dropped sharply from $8.88 billion (about 11.6 trillion KRW) in the same period last year to $521 million (about 680 billion KRW).

Vincent Clerc, CEO of Maersk, stated, “Since summer, prices have fallen in most regions due to overproduction, and ship recycling or idling has not noticeably increased.”

Earlier, from the beginning of last year, freight rates continued to decline due to consumption slowdown caused by inflation and the easing of port congestion. Maersk had already forecasted in August that global sea container shipping demand would sharply decrease this year due to inventory adjustments following the COVID-19 pandemic.

Sea freight costs from Asia to the U.S. or Europe soared to $20,000 in September 2021 but fell by 90% in the third quarter of this year compared to early 2022. Especially, the container industry, which increased orders for cargo ships to handle the surge in demand during the COVID-19 crisis, is inevitably facing a greater shock.

Peter Sand, senior analyst at maritime information firm Xeneta, analyzed, “Next year will be tougher for the industry than this year. Container industry supply capacity is expected to increase by about 6%, but demand will only grow by 2%.”

Meanwhile, Maersk announced, “We plan to reduce our workforce from 110,000 to below 100,000 to save $600 million next year compared to this year,” adding, “One-time restructuring costs of $350 million will mostly be reflected in this year’s financial results.”

This content was produced with the assistance of AI translation services.