Shipping giant warns for sharp contraction in demand in the following months

“Our expectation is that we will see demand significantly down in the second quarter, maybe as much as 20% to 25%. But, we will also match that on a one-to-one basis with reductions in capacity,” Soren Skou, CEO of A.P. Moller-Maersk, told CNBC’s “Squawk Box Europe” on Wednesday.

“It helps continue to serve the customers but also to take out a lot of costs and keep our pricing stable,” he added.

The world’s largest container shipping company said it expects 2020 to be a “challenging year,” with demand expected to decrease across all business in the second quarter.

In an effort to offset a slowdown in global trade, A.P. Moller-Maersk said it had canceled more than 90 sailings, or 3.5% of total shipping capacity, in the first three months of the year.

It expects close to 140 sailings to be canceled in the second quarter.

9.4% idled capacity

The company said the combination of a fall in demand and increased uncertainty about the future, following the emergence of the Covid-19 crisis, had led to suspensions and so-called “blanked sailings” in the first quarter.

A blank or void sailing is a sailing that has been canceled by the carrier.

A.P. Moller-Maersk said its idle fleet made up 9.4% of its total capacity at the end of the first quarter. That’s the firm’s highest level of idled fleet capacity in more than 10 years.

Further drop to be expected

When asked whether idled fleet capacity could increase even further in the second quarter, Skou replied: “I would expect that if we actually see a further drop in demand then the idle fleet, for sure, will increase as we adjust the network size to ensure that we continue to have a high utilization and take out as much costs as we possibly can.”

It comes as the company reported first-quarter revenue of $9.57 billion, largely in line with analyst expectations. It reported first-quarter revenue of $9.54 billion a year earlier.

Meanwhile, earnings before interest, tax, depreciation, and amortization (EBITDA) increased 23% to $1.52 billion over the first three months of the tear, slightly above company guidance provided in March.

Shares of the A.P. Moller-Maersk slipped almost 6% during morning deals.