President Donald Trump shifted tariff policy on April 9, imposing 145% tariffs on China and 10% tariffs in all other countries over the next 90 days. Maersk Maersk B. Stocks fell 22% this year. Stocks are extremely volatile and are moving rapidly as expectations change as policies change.
Why it matters: China-US trade accounts for 2%-3% of global trade volume, and you will feel the biggest impact from current policy. However, policy changes will expand Maersk’s exposure, as well as those that collect tariffs in more countries, and increase the likelihood of withdrawal of volume and price.
Conclusion: In line with Hapag-lloyd, we reduced our estimate of fair value for No-Moat Maersk to DKK 11,100, down 20% since the beginning of the year. A short recession scenario focused on China is considered a more likely outcome, but takes into account the possibility of severe tariffs.
In this scenario, global total production forecasts are expected to fall by 1.5%-2.5%. Trade volumes are consistent with GDP growth over the past decade, so we model the trade volumes to equal volumes.
If a long-term recession occurs, the downside is 40%
We analyzed the potential impacts of three potential Maersk outcomes when tariff policies change frequently. We analyzed tariffs that focus primarily on China, recessions from less than a year’s tariffs, and recessions that lasted over 18 months due to the long-term trade war.
Our short recession examples are Covid-19 and the 2000.com bubble. During Covid-19, prices for Maersk and Hapag-Lloyd fell 38% and 36% respectively. Only Maersk traded between the bubbles on dotcom and fell 50% in that trough.
Tariffs were not a perfect comparison for either period, as they were not a factor in either recession. In this scenario, we expect a further volume reduction over the course of 18 months. Freight rate forecasts also fell slightly as lower demand puts downward pressure on freight prices. This reduces the average fair value by 25% from fair value on January 1 to DKK 10,500, almost in line with the market.
A recent comparison with the long-term recession is the 2007-09 global financial crisis. Maersk was the only one traded during that period, bottoming out at a negative 63%. This is not a comparison between apple and april, as tariffs were not a factor in the sudden drop, as in our short-term scenario. The Smoot Holy Customs Act of 1930, the last period of significant tariffs, saw US imports fall by two-thirds. However, given the globalization of the economy since 1930, I believe this is not a fair comparison with the current situation.
In the event of a long-term recession caused by a trade war, we anticipate a serious volume impact and will result in a withdrawal of the volume throughout the forecast period. Additionally, due to a significant reduction in demand, we have put a lot of pressure on freight prices, which has significantly reduced freight rate forecasts and margins. This will reduce the average fair value by 40% from the estimate of fair value on January 1st to DKK 8,000.
Ship supply concerns fall on back burners due to tariffs, but these can hit the performance of global airlines. After a decade of conservative spending and limited expansion in ship supply, the global order book has returned to its high levels of its past.
Due to the situation in the Red Sea, rerouting around the Cape of Hope has reduced vessel supply and artificially increased shipping costs. If global shippers can and can return to the Red Sea, the freight rates will drop significantly, and everything else will be equal. Maersk quantified the revenue impact and predicted a $3 billion difference between EBIT and EBITDA if the Suez Canal remained closed all year round, compared to the Suez Canal opened over a year.
The Bulls say: If the current policy is in place until 2026, volumes are expected to decrease by 1% to 2%, resulting in a 12% decrease in fair value for the start of the year, estimated at DKK 12,000.
The Bears say: We analyzed Maersk and Hapag-Lloyd during the recent recession, short-term (3 months to 1 year), and long-term (over 18 months).
In the event of a short recession, volumes are expected to decrease by 2%-3%, and estimates of fair value to DKK 10,500 will be reduced by 25%. If a long-term recession occurs, it is expected to have a serious impact on freight rates.
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