(Commonwealth) _ Maersk, a major player in the shipping industry, is making significant job cuts as the pandemic-induced period of prosperity gives way to a downturn. The world’s second-largest ocean carrier has revealed that it is intensifying its job cut efforts due to worsening market conditions in ocean shipping. Vincent Clerc, the CEO of A.P. Moller-Maersk, acknowledged the challenging times ahead and the significant downside risks associated with the uncertain trading environment. At the beginning of the year, Maersk had 110,000 global employees, and throughout the year, it has quietly cut 6,500 jobs, which it had not previously disclosed. Now, it has decided to further reduce its workforce by 3,500 jobs, with 2,500 job cuts expected by year-end and 1,000 in 2024. This total reduction of 10,000 layoffs will result in a 9% decrease in global headcount.
Clerc emphasized that these job cuts are not just a temporary cost-saving measure; instead, they represent a reset of the baseline for the company. The restructuring will lead to charges of $350 million in the current year, a significant increase from the $150 million guidance announced in February. Additionally, there will be $600 million in cost savings from lower compensation in the following year. The cost-cutting measures go beyond job cuts. Maersk is exploring all options to preserve cash, including slashing capital expenditures (capex) for both the current year and next year. There is also consideration of halting share buybacks in the future. Maersk now anticipates 2023 capex of $8 billion, down from the previous guidance of $9 billion-$10 billion, and 2024 capex of $8 billion-$9 billion, down from the previous guidance of $10 billion-$11 billion. These reductions in capex amount to a total cut of $3.5 billion or 17.5% for 2023-2024.
During the announcement, Maersk executives mentioned that capex reductions would primarily involve delaying investments in the ocean shipping division. High yard costs were cited as a reason for this delay, indicating that Maersk has postponed orders for certain methanol-powered new buildings that would have otherwise been ordered. It’s important to note that Maersk’s decision to cut costs is not driven by a lack of cash. The company’s liquidity remained strong at $26.8 billion at the end of Q3, nearly unchanged from $26.9 billion at the end of Q2. Instead, the cost-cutting measures are a proactive response to the high level of uncertainty in the industry. The company is preparing for a wide range of scenarios that may unfold in 2024. The fourth quarter of this year will play a pivotal role in determining how 2024 shapes up for Maersk. The company heavily relies on contract rates, which mostly reset on a calendar-year basis in the Asia-Europe market and in May in the Asia-U.S. market. European contracts are on the verge of resetting, with the rates contingent on developments in the spot market over the next few months.
Clerc explained that the future of contract renegotiations and the impact on Maersk will depend on what happens with spot rates during the next three months. The uncertainty surrounding where contracts will reset and the premium Maersk can achieve compared to spot rates on its contracts is a major reason behind these cost-cutting measures.
In conclusion, Maersk’s decision to intensify job cuts and implement substantial cost-saving measures reflects the challenging and uncertain times in the shipping industry. The company is taking proactive steps to weather any potential scenarios in the coming years, with a focus on preserving cash and preparing for uncertainties in contract rates. The industry will be closely watching Maersk’s approach and its impact on the broader maritime sector.
