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With the frictions President Donald Trump has added to global trade, it might seem that shipping companies would be experiencing choppy times. Yet demand for freight is actually growing. Denmark’s AP Moller-Maersk expects it to increase up to 4 per cent this year. So why, then, are the big shipping lines warning that profitability might hit the rocks?

Maersk, a giant of maritime transport, says it could end up in the red this year for the first time in a decade. Rival ONE recently reported a quarterly loss. The problem is that while demand is growing, so is the amount of new freight capacity taking to the seas, and some non-tariff-related wrinkles in global trade flows are flattening out.

Shipping rates rose during the Covid-19 pandemic and were buoyed further by geopolitical disruptions such as the closure of routes through the Red Sea a couple of years ago, which lengthened sailing times. Helped by these shifts, executives spent generously on new vessels.

The problem comes when the need for space on ships flattens out but capacity doesn’t. By the end of this year, container shipping demand will have risen about 15 to 20 per cent from 2019 levels, while capacity will have shot up by 47 per cent, reckon Bernstein analysts. The result is a drop in freight rates. The Drewry World Container index is down 30 per cent over the past 12 months, leading analysts to forecast an 8 per cent decline in Maersk’s full-year revenue.

While some of the cycle of boom and bust is foreseeable by those at the helm of shipping companies, the world remains subject to upsets and hard-to-predict resolutions. A smoother process of achieving peace between Israel and Gaza might speed up the reopening of the Red Sea, cutting transport distances. Conversely, tensions between the US and Iran could easily create other snarl-ups. 

Shippers can field these changes in various ways. The industry is now considering ways to cut costs, such as removing scheduled sailings, travelling at slower speeds and potentially idling some vessels. Scrapping older ships is a last-ditch measure. 

Where they have learned the lessons of history, thankfully, is in shoring up their balance sheets while times were good. Shipping lines’ net debt reached an eye-watering multiple of 7.3 times ebitda in the years preceding the pandemic, according to AlixPartners’ analysis. Since 2020, the ratio has averaged a much more conservative 1.2 times. Earnings in recent years have covered interest payments four or five times over. 

Maersk underlined the uncertainty when it warned that although it might make a loss this year, it might alternatively — in the right circumstances — make a $1bn operating profit. That’s a wide range. Its shares, hovering near two-year highs, suggest that investors might be too calm about this variability. But they are justified in thinking the big container lines should remain afloat.

jennifer.hughes@ft.com