Denmark’s third-largest company, A.P. Moeller Maersk (CPH: MAERSK-B), which manages the world’s largest container shipping company (getting things like food, fashion and furniture across the globe), reported first-quarter profits that came in well below market expectations on Thursday. Firms tied to international trade might struggle to find their sea legs this year.
What does this mean?
Maersk’s costs are rising faster than its revenues can keep up. Although the company’s trying to rein in its spending, factors like the rising price of oil caused Maersk to lose money overall from doing business, taking the wind out of its sails and 10% off its share price.
The downstream waters aren’t looking calm either, Maersk’s planning to take its business out of Iran as tensions there continue to flare. If disagreements between big trading nations continue to grow, Maersk says its business will likely suffer the consequences.
Why should investors care?
The bigger picture: Geopolitical risks threaten a fragile recovery in container shipping.
While 2017 was a year of relative calm in global shipping after a rocky 2016 (with South Korea’s Hanjin Shipping going belly-up) that recovery now looks testy. Mergers and acquisitions might have helped shippers to scale up and improve profitability, but rising threats to international trade (like higher tariffs) and expanding cargo capacity from Asian shippers could undo some of that progress.
For markets: Maersk does more than just maritime freight.
It’s also got an extensive oil exploration and delivery business. But the company faced a double whammy as it contended with both the slowing pace of global trade since 2008 and slumping oil prices from 2014-16. Maersk decided to focus on maritime freight, pleasing investors for a little last year as the sector picked up. However, now that Maersk has had trouble selling its oil business and the cargo freight game’s hitting some headwinds, they might be a little lost at sea.
This article was originally published by finimize.