Shipping giant Maersk: $500M in extra costs per month amid Iran war

0:00 Uh, being so much interested in shipping now,

0:02 probably the most since the pandemic.

0:04 We're watching the Strait of Hormuz on an hourly, daily basis.

0:07 What was the wash-up for you in the quarter?

0:11 I think there's a there's a few key high notes for for all to remember.

0:15 The first one is actually the resilience of of global

0:18 trade throughout the the first the first quarter here,

0:21 continuing on two years of very, very strong volume growth.

0:24 We've guided on a volume of 2 to 4% for the year volume growth.

0:27 Definitely the first quarter was at the upper end

0:30 of the at the upper end of this of this guidance.

0:34 The second is actually the very,

0:36 very strong performance that we have delivered both

0:38 commercially with growth across all of our businesses,

0:40 9% growth on the container volumes, 4% on the terminal volumes,

0:45 8 to 9% growth on the top line in the logistics.

0:47 That's really strong.

0:48 And then finally, great cost

0:51 containment with unit costing reductions everywhere.

0:53 And all of that contributed to the beat that you just mentioned.

0:57 The real the last thing that I want to mention is is

0:59 actually we are still facing though headwinds on on the in the shipping

1:03 division because of an overhang of capacity due to the high delivery

1:08 of of new new vessels phased in over the last 18 months.

1:12 Still ahead of demand that has put some pressure on the pricing environment.

1:16 And then towards the end of the quarter,

1:17 the war in the Middle East created a new wake-up call as you mentioned

1:21 with significant disruptions both to to the flows in and around the Middle East,

1:27 but also to our energy supply.

1:29 We are highly energy intensive industry and that has

1:31 created a whole new set of circumstances that that we

1:35 now have to deal with and that will have

1:37 an important impact on on the second and third quarter.

1:41 Now, this is something that we think we can manage.

1:43 And and therefore we're able to to reconduct the guidance,

1:46 but there are a few a few watch-outs still because the situation is very fluid.

1:51 When Strait is going to reopen is unclear.

1:53 And what is going to happen to energy prices once it reopen is also unclear.

1:58 So so there is a lot of things still to watch out for.

2:00 Uh one second, can I ask you about some of the tension around the Strait

2:03 of Hormuz because there was a report

2:05 that rolled across news organizations a couple days back

2:08 around Project Freedom where there was a US-flagged

2:11 ship that was a subsidiary of Maersk

2:12 that got actually got through after being guided

2:15 by the American team through the Strait of Hormuz.

2:18 So can you talk about some of the tension about getting those ships through?

2:23 Yeah, obviously, you know, we have we have uh like many uh vessel operators,

2:27 we have some ships that are stuck uh and unable

2:29 to uh to sail through the Strait of Hormuz.

2:32 Uh we've taken throughout the war a very

2:34 cautious approach uh and and very clear safety assessments.

2:37 And and for us we we have not

2:39 attempted any crossing since the beginning of the conflict

2:42 because of the risk that we saw this would represent for our for our crew,

2:46 our colleagues, and our assets.

2:48 In this case here, we were approached by the US government and and uh

2:51 the US Navy specifically uh saying that they wanted to to take some ships out.

2:56 Uh we went through intense preparation together with them,

2:59 looked at all uh the aspects of of the mission and and whether we could stand

3:05 in for the safety of of the crew uh if

3:07 we were sending the the ship along in that operation.

3:10 Our assessment was that the the US Navy had made an extremely thorough uh plan

3:15 and that we felt comfortable we could

3:17 get the ship through without uh without risk.

3:20 And and then uh we conducted the operation

3:22 here earlier in the week and we're very

3:24 pleased to see that everybody got safely uh

3:27 on the other side without without any incident.

3:29 So a very well-executed mission uh by the US military and thank God uh

3:34 for that because then it means that uh the ship is free and the crew

3:38 uh now can get back to uh to doing the work that that they

3:41 want to do and are supposed to do rather than be stuck in the Gulf.

3:44 Oh, let me follow up on that because Project Freedom now paused,

3:46 but there's this Axios report around a proposal

3:49 trying to find an off-ramp and and the conflict.

3:51 How hopeful are you that we could see a resolution

3:54 soon that allows the Strait of Hormuz to be reopened?

4:00 Yeah, so we I think over the last 8 weeks we've seen different

4:02 waves of the end seeming near or or the end seeming far away.

4:08 I think for us we're not really sitting at the table there,

4:11 so it's hard for me to speculate on on whether we're close

4:14 to a solution or we are not close to to to a solution.

4:17 We continue obviously to follow this extremely closely because we

4:21 still have ships that are stuck on the other side.

4:24 We still have cargoes that need to make

4:26 it to the upper Gulf which which are disrupted

4:28 today and we're getting them to Kuwait or to Qatar or to Bahrain is is much more

4:33 complicated today than it was before and we

4:36 play a big role in that region on food supply on on medical supplies and we want

4:40 to be able to play that role to the fullest.

4:43 But it is primarily a safety assessment and that it

4:46 needs to have a political solution between the US

4:49 and and Iran so that the Strait can actually be

4:51 free and open and we can have ships sail through again,

4:55 but when that is going to happen is really hard to predict.

4:58 Uh Vensol, it's Ben here.

5:00 I How many ships do you still have trapped in the Gulf at the moment?

5:06 So we have eight ships trapped in the Gulf which

5:09 is which is a relative to our size I think

5:12 we've been fortunate to have a relatively small number of ships

5:15 that that were in the Gulf on on that day.

5:18 Uh but this is obviously a a situation where where eventually we're

5:22 going to need to find a solution for all of these ships.

5:24 Some of them are supposed to stay in the Gulf

5:26 and and work there to move cargo inside the Gulf,

5:29 but for most of them they are trapped and we would like to be

5:33 able to employ them outside the the Gulf rather than have them stuck there.

5:37 I just want to get your thoughts on a piece

5:38 by The Wall Street Journal published today about 20,000 sailors

5:43 stranded by the Iran war on ships that are caught

5:46 in the region that are unable to exit the straight.

5:49 Um in some cases some ships are running out of food,

5:52 in other cases some companies apparently are delayed in paying these sailors.

5:57 How much coordination is going on between you and perhaps smaller shipping

6:01 companies to avert a sort of a humanitarian problem among these sailors?

6:05 For example, if food is running out on some ships.

6:10 Yeah, I must say that from from our side

6:13 we have we have not seen any of those problems.

6:15 We have enjoyed fantastic support from Saudi

6:20 authorities to provide visas for for crew

6:23 to either get off the ship and be able to go home or for new

6:26 crew coming onto the ship being able to transit through Saudi Arabia

6:31 and and being transported to to the ship so that they could take their service.

6:36 We've been There is no delay in paying and there is no issue in in bringing

6:41 on food and supplies to the ship to to the crews that are that are there.

6:45 So, um It is There is close to 800 ships that are stuck up there and I

6:51 think that there is probably different ways

6:53 to to look at and and take care of this.

6:56 For us, our primary concern, and this is not a cliche,

6:58 is really the safety and the well-being of our crew.

7:01 And we've been able so far to to ensure

7:03 that and also to actually transit people in and out of off

7:08 and on of those ships without the without any problem thanks

7:11 to a fantastic support as I mentioned from the Saudi authorities.

7:13 Uh Vincent, just wanted to put it once for me.

7:15 Good morning to you, sir.

7:16 Um tariffs, war, higher energy prices.

7:21 How concerned are you, quite apart from all those points you mentioned

7:25 about the short term with Karen and Ben there,

7:27 that actually over the medium to longer term we're going

7:29 to see demand destruction and global trade flows will decline?

7:34 Yeah, so, you know, if I just look at at our financials,

7:38 what what this oil what this energy shock is

7:41 going to mean is about $500 of extra cost

7:44 per month for as long as the oil remains

7:47 around in the in the $100 per barrel neighborhood.

7:52 That is significant and there is so much we can do on reducing cost,

7:57 but there is a lot we need to do on passing on these these costs

7:59 to to customers because it's it's it's such

8:02 a massive cost increase that we can't shoulder it.

8:05 And we've been successful at doing that.

8:06 And I think for us one of the one of the great unknown is this extreme

8:10 resilience that we have seen in container trade

8:13 volumes over the last two and a half years.

8:15 How long will it continue?

8:16 So far it shows no sign of of abating,

8:20 but as some of these costs made their way all the way up to the end consumer,

8:24 will we see demand destruction at at the consumer level and will that then

8:31 reverberate throughout the supply chain with softer

8:34 demand in the second part of the year?

8:35 That is certainly something that we're looking out for very

8:39 very closely because it would suddenly change the equation

8:42 on on how this this crisis is going to impact

8:46 the global supply chain and our industry in particular.

8:49 But here's the problem, Vincent, and you know this far better than I do,

8:52 is that the modus operandi of the US administration,

8:54 of the US president, is to keep these shocks coming,

8:57 to kind of put pressure, whether it be on trade, whether it be on geopolitics,

9:01 whether it be on war, on erstwhile oppositions or foes or whatever

9:04 you want to call them, partners even.

9:06 The problem is, even when we get over the tariff shock,

9:09 even when we get over the Middle East shock,

9:11 there's going to be the next one, isn't there?

9:15 Yeah, I think, you know,

9:16 2 years ago we had to stop selling through Bab el Mandeb.

9:19 1 year ago we had to deal with the the the the fallout of liberation day,

9:23 which was quite important in in in our part of the of the supply

9:27 chain and this year it is this shock with from the war in Iran.

9:31 I think what we have shown is an incredible

9:33 resilience and agility in the organization to actually

9:36 cope with this and not let it impact

9:38 our financial and the execution of our strategy.

9:41 And that is that remains actually our core focus.

9:43 There is a lot of these shocks that we

9:45 know we're not in control of and we don't decide.

9:48 What we can actually control is how agile and how

9:51 quick and how good we are at responding to these shocks

9:53 in a way that furthers our strategic execution and puts

9:58 us in in good shape to continue to support our customers.

10:00 And I think that the organization so far has

10:02 been doing that brilliantly over the past few years.