Maersk Braces for Impact of COVID-19

Maersk, the world's largest container shipping company, has warned that earnings will be hit by the impact of the Covid-19 outbreak, not only in China, but across the world.

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A.P. Moller-Maersk A/S, the world's largest container shipping company, has warned that the Covid-19 outbreak in China, and quickly spreading across the world, would hit earnings this year. Maersk said factories in China are currently operating at 50-60% of capacity because the economy has ground to a halt. 

Maersk reported an unexpected loss in the fourth quarter of US$72 million from a profit of US$46 million a year earlier. The carrier, seen as a barometer of global trade, said revenues declined 5.6% to US$9.67 billion, missing expectations of US$9.4 billion, due mostly to a decline in container shipping. 

"As factories in China are closed for longer than usual in connection with the Chinese New Year as a result of the COVID-19, we expect a weak start of the year," Maersk warned. On top of their already announced ‘blank sailings’ in relation to the Lunar New Year and Corona Virus effect, they have observed a further reduction in demand due to the extended holiday period announced in China.

Soren Skou, Maersk's chief executive, said in an interview with the Financial Times that China could be operating at 90% capacity by March 02. Still, he noted that a lot of "things that could go wrong," such as labour and part shortages to logistics transportation, had been a nightmare for many factories in preventing them from a complete factory restart. There's also the problem that manufacturers are running out of capital to cover labour expenses. All of this means the timelines of factory restarts in China will continue to be pushed out.

Maersk expects global container demand to be around 1% to 3% this year. This is below the rate seen before the 2008/09 financial crisis, as well as 3.8% seen in 2018, suggesting the global economy is rapidly slowing. 

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