[260220.EN.SEA] Maersk Optimistic Shipping Will Have V-shaped Coronavirus Recovery

THE first quarter of the year was decimated by the outbreak of the coronavirus, however, Maersk foresees a V-shaped recovery could occur after normal factory production levels return in China, provided outbreaks of the virus around the world do not become more widespread in the second quarter.

Maersk is looking towards April for a possible recovery after a weak first quarter thanks to the fallout of the Wuhan coronavirus.

Speaking in a conference call following the release of the carrier's full-year results, chief executive Soren Skou said that while it was difficult to get a full sense of the impact of the coronavirus on trade, the first quarter would be "significantly impacted" by the extended factory closures in China, reported London's Lloyd's List.

"Factories are slowly returning to production but we estimate that they are operating at 50-60 per cent of capacity, which will be ramping up to around 90 per cent of capacity by the first week of March," he said.

The consensus is that the outbreak would peak over the coming weeks, with data showing the number of new infections decreasing.

"That means that we could expect a trajectory similar to the one we saw during SARS, but with a larger magnitude, since China's impact on global supply chains is much bigger today and China's role in the global economy is much bigger."

That, he added, would imply a V-shaped recovery.

"We will have very weak exports in February and March, then hopefully a strong rebound in April," Mr Skou said.

But there were still uncertainties and the prognosis implied no new outbreaks in other countries outside China, he added.

"The next two to three weeks will tell us what the trend is. The long-term outlook will depend on how long the outbreak lasts."

Maersk cancelled 50 sailings in addition to those it would have usually cancelled for the Lunar New Year slowdown, Mr Skou said. Idling ships has an effect on the company's bottom line.

"When ships are idle we are not spending money on fuel or port costs, but we are still depreciating and paying charter fees," Mr Skou said. "We will not be able to mitigate the loss of volumes with costs on a one-to-one basis so we will have an increased negative effect in the short term."

Even with the capacity reductions, Maersk has lowered its full-year earnings guidance by US$200 million to $5.5 billion, largely as a result of coronavirus, but also taking into account the impact of IMO 2020 and wider macro trends.

"Coronavirus affects all of our businesses, such as terminal ventures in China and the significant logistics and warehousing business there," Mr Skou said.

Pent-up demand should help Maersk and other carriers should the outbreak retreat over the coming weeks, leading to an "excess of exports" in April.

"Inventories are being run down, both of finished goods and semi-finished goods," Mr Skou said. "Many manufacturers in Southeast Asia rely on China for parts and semi-finished goods. If we do end up with a V-shaped recovery then we will see an overshoot in the latter part of the second quarter."

Yet, if the coronavirus continues to spread unabated, there would be an even bigger impact.

"If a recovery does not happen then it will impact global economic growth, which is the main outcome we are worrying about."

Source : HKSG.