No Signs of Recession in US Economy

Maersk, seen as a barometer of global trade, has stated that freight demand does not indicate signs of an economic recession in the United States, while warning that ongoing tensions in the Red Sea could exacerbate inflation...

The shipping giant Maersk, considered a weathervane for global trade, announced on Wednesday that they have not observed signs of an economic downturn in the United States due to continued strong freight demand.

Vincent Clerc, CEO of Maersk, said on Wednesday's "Squawk Box Europe" on CNBC, "Over the past few years, we have actually seen the container market maintaining astonishing resilience in the face of all economic recession concerns," adding that container demand is typically a good indicator of underlying macroeconomic strength.

Clerc noted that U.S. inventory levels, which refer to goods stored before delivery or processing, are "higher than at the beginning of the year, but not at a level that is worrisome or indicative of an imminent slowdown," although he also pointed out that there is some unpredictability in the amount of inventory that businesses are replenishing.

"We have also been monitoring many retailers' and consumer brands' purchase orders, which need to be imported into the U.S. to meet demand for the next month, and the situation seems to remain quite robust... At least the current data and indicators seem to suggest that there is still some confidence in the current level of consumption in the United States," Clerc said.

Last week, concerns about the world's largest economy, the United States, falling into a recession suddenly escalated after a series of weaker-than-expected employment data left economists and market participants divided.

The latest data released by the U.S. Census Bureau showed that U.S. retail trade inventory, a measure of idle stock, grew by 5.33% year-on-year to $793.86 billion in May.

A report released on Wednesday by the leasing platform Container xChange stated that indicators show inventory is higher than demand, which means that the coming months will be a less "prosperous period" for container traders, logistics markets, and retailers who are stockpiling.

Clerc expressed surprise at the resilience of container freight volumes over the past few years and said he expects this to continue in the coming quarters, with no signs that the global economy is heading towards a recession.

He continued, saying that Chinese exports have been the engine behind the strong container freight volumes, and the global share of containers shipped from or to China is also increasing.In comparison, the outlook for the Danish company in 2022 was significantly bleaker, as it warned that inflation, the threat of a global recession, the European energy crisis, and the Russia-Ukraine conflict would drag on demand. The combined effect of these factors led to a decrease in freight rates in 2023, causing Maersk's profits to plummet significantly.

However, this trend has been partially reversed this year, as a surge in geopolitical tensions in the Red Sea region has led shipping companies to alter trade routes, bypassing the southern coast of Africa, extending voyage times, and reducing global capacity.

Clerk told CNBC on Wednesday that he expects the transshipment triggered by the situation in the Red Sea to last at least until the end of the year. Clerk said, "Of course, this requires more capacity, more ships to facilitate the transportation of global trade around the world, which has already caused some shortages in the second and third quarters, and we are currently dealing with these issues." He added that this also means higher shipping costs in the short term, so we have to bear a considerable cost, whether it's needing more ships or needing more containers to accomplish the work we expect.

He continued, saying that if this situation continues, Maersk's base costs will experience "severe inflation," and it will need to pass on the inflation to its customers, with costs for routes from Asia to Europe or the East Coast of the United States increasing by 20% to 30%.

Capacity constraints have positively impacted the profit margins of the Danish shipping giant in the short term and have prompted it to raise its profits three times in recent months. Maersk reported on Wednesday that its base profit for the second quarter decreased to $623 million compared to the same period last year, while revenue decreased from $12.99 billion to $12.77 billion.

The company stated that despite the lower annual profit margins, the ocean shipping profit margins were "significantly better than" the first quarter of 2024 and the fourth quarter of 2023, with an EBIT margin of 5.6%, compared to -2% and -12.8% in the previous two periods, respectively.