HLAG Hapag-Lloyd AG

By Costas Paris 

A.P. Moeller-Maersk A/S, the world's biggest cargo carrier, warned Tuesday its earnings would be weaker than expected this year due to rising fuel prices, soft freight rates and escalating trade tensions.

Maersk, which moves about 18% of all containers and is considered a barometer of global trade, said it expects its core profit this year to come in at $3.5 billion to $4.2 billion, compared with previous guidance of between $4 billion and $5 billion.

The Danish freight carrier's warning comes after German rival Hapag-Lloyd AG warned investors in June of weaker earnings this year. Analysts expect lower results for the top operators, which had briefly emerged from deep losses in 2017.

Maersk said its profit will be hit by a 28% increase in its fuel bill and a 1.2% decline in average freight rates.

The company's shares tumbled after the warning, but quickly recovered to close up 6.4% in Copenhagen trading. Analysts said the profit warning was no surprise and pointed to Maersk's recent moves to cut costs, including suspending unprofitable sailings from Asia to the Americas.

Container shipping moves 98% of the world's manufactured goods, but freight rates are about half of break-even levels across major trade routes. Rates have declined despite a wave of consolidation over the past two years that has resulted in only about a half dozen global operators.

"The operators are less, but competition continues to eat us all up because of rampant overcapacity," said a senior executive of a European box-ship operator who asked not to be named. "Price wars and undercutting is more fierce than ever."

With its previous 2018 guidance, Maersk was expecting an underlying annual profit above the $365 million booked last year, but without citing any numbers it now forecasts "a positive underlying profit."

"We continue to encounter very high [fuel] prices, which we have not been able to get fully compensated for in freight rates, leading to an adjustment in our expectations for the full-year 2018." Maersk Chief Executive Soren Skou said.

Maersk said growing uncertainties from rising trade tensions between the U.S., China and Europe are also weighing on its results.

Rival carrier Overseas Orient Container Line, which recently was acquired by Cosco Shipping Holdings Co., reported last week that deteriorating global freight rates would likely push the company into the red in the first half of the year. Another operator, Ocean Network Express, lost $120 million in the second quarter as it struggled to put its joint-venture business between Japan's three big shipping lines into motion.

Container shipping prices have been trending upward in recent weeks, particularly on trade from Asia to North America. But Drewry Shipping Consultants Ltd. says prices for trade between Asia and Europe, an important part of Maersk's network, are down from a year ago.

Global shipping lines, which move $4 trillion worth of products each year, stand to feel the effects of recent trade tariffs on $34 billion worth of Chinese products imported in the U.S., with Beijing slapping similar levies on U.S. imports.

The moves affect engines, medical equipment, semiconductors and other products that account for about 6% of total China-U.S container trade capacity, according to the Journal of Commerce.

"Right now it only gets worse for shipping from the escalating trade war, " said Peter Sand, chief shipping analyst at BIMCO, an industry group. "Huge amounts of uncertainty is added."

Maersk has said the initial round of tariffs is expected to have a small impact on its business, but "a continued escalation could result in severe consequences for global trade."

Write to Costas Paris at costas.paris@wsj.com

(END) Dow Jones Newswires

August 07, 2018 14:03 ET (18:03 GMT)

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