Goldman Sachs Warning: Shipping industry recession may be more prolonged and severe!

Goldman Sachs has issued a warning about the future of the shipping industry, stating that the recession will be more severe and prolonged than market expectations.

In its latest report, Goldman Sachs analyst Patrick Creuset predicts that the decline in the shipping industry will be more severe and lasting than the market anticipates. This will result in further decline in freight prices and company profits, and the future of Maersk is not optimistic. Maersk's rating has been downgraded to "sell":

"We believe that the market still does not fully understand the severity and duration of the recession that the shipping industry is about to face. Currently, there is still an oversupply of shipping capacity in the market, which will put pressure on freight prices and company profits. Maersk's profits are expected to decline by 8% in 2023-2024.

Creuset stated that despite the price decline in the shipping market, the supply in the shipping market is still relatively abundant due to the continuous delivery of new vessels, timely delivery of goods, and fewer vessels being decommissioned:

"The delivery speed of new vessels accounts for about 1% of the global fleet, with almost no delays, low idle and scrapping volume, and active vessel capacity will increase significantly on major routes in November.

It is worth mentioning that the container shipping industry relies on global demand trends. During the COVID-19 period from 2020 to 2022, the container shipping industry experienced unprecedented prosperity as retailers and other companies replenished inventory to meet suppressed consumer demand, resulting in a situation where containers were in short supply and freight rates continued to rise.

However, since reaching its peak in early 2022, weak demand has led to a sharp decline in container freight rates.

Creuset believes that compared to previous shipping bear markets, there are two main factors that may cause a more severe decline in Maersk's profit margin this time:

First, the industry's balance sheets have been highly leveraged in the past, which means that cash flow cannot be sustained for a long time. However, this time, most carriers hold billions of dollars in cash.

Second, the evolution of alliance structures in the shipping industry, these changes may make some shipping companies more independent, but they may also increase the difficulty of managing excess freight capacity. Operators are still ordering new vessels, indicating that the industry needs more tools to manage capacity.

Maersk issued a warning in August this year, stating that the contraction of global trade is exceeding expectations in terms of time and extent, and demand in Europe and the United States is declining, with "dark clouds" ahead. Maersk CEO Vincent Clerc said in a recent interview with Bloomberg that the container shipping industry is going through its biggest adjustment period after the COVID-19 pandemic in 2021 and 2022. The contraction in global trade may last longer and be more severe than previously anticipated.