CMA CGM signals potential price war as new ships set to boost capacity

  • Stock Market News
CMA CGM signals potential price war as new ships set to boost capacity
Credit: © Reuters.

In the face of an anticipated increase in shipping capacity and a global economic downturn, CMA CGM SA is bracing for a potential price war that could depress freight rates. The shipping giant, controlled by billionaire Rodolphe Saade and his family, reported a steep decline in third-quarter profits, with net income plummeting 94% to $388 million. The company's profit margin also took a significant hit, dropping from 46% to 17.5%.

CMA CGM's Chief Financial Officer Ramon Fernandez pointed out the cyclical nature of the shipping industry, marked by periods of boom and bust. This cautionary outlook follows the company's announcement of plans to expand its fleet by 100 new vessels, adding to its current tally of 621 ships. The move comes at a time when the industry is already dealing with the repercussions of a downturn that began in the second half of 2022, following a pandemic-induced surge that led many companies, including CMA CGM, to place record orders for new vessels. These ships are now starting to enter service, with an expected increase in capacity of 9% in 2024.

The broader shipping industry shares CMA CGM's concerns, as evidenced by similar statements from A.P. Moller-Maersk A/S and Hapag-Lloyd AG last week. Both companies have highlighted challenging market conditions, with Maersk responding by cutting at least 10,000 jobs to maintain profitability.

Despite these challenges, CMA CGM has continued to diversify its business interests. The company has expanded into media assets, acquiring La Tribune newspaper, and is close to finalizing its largest acquisition to date—the logistics arm of Bollore SE.

In addition to industry-specific issues, external economic pressures are also weighing on the sector. Two wars, elevated inflation rates, and rising borrowing costs have dampened consumer spending and business confidence globally. These factors have contributed to a decline in the Saade family's net worth from $33 billion in April to $19 billion.

While CMA CGM has announced measures to reduce costs, it has not specified whether this will involve job cuts. The company's strategic moves come as it navigates an increasingly volatile market landscape that could reshape the shipping industry in the years ahead.

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