The world’s largest container groups protect bumper dividends

The world’s two largest publicly traded container shipping companies have defended plans to hand out multibillion-dollar payouts to shareholders despite the threat of falling profits and pressure from low tax rates.

Denmark’s AP Møller-Maersk group and German rival Hapag-Lloyd plan a combined dividend of $22.6 billion, more than 33 times the amount delivered in 2019.

Although the bumper payments follow a record period for profits, revenues are expected to fall sharply this year as global trade falls due to the economic slowdown.

Both groups forecast a roughly 70 percent drop in profits by 2023, and their combined payouts will be at least 30 percent higher than this year’s earnings.

Profits for carriers have increased largely due to a surge in demand for online shopping at the height of the Covid-19 pandemic and supply chain bottlenecks that have caused the cost of transporting goods by sea to soar.

Maersk said the proposed dividend for 2022 was equivalent to 37.5 percent of underlying earnings, adding that it was “fully in line” with its policy of paying out 30 to 50 percent of earnings.

Bar chart (in billions of dollars) showing Maersk's dividend payout has jumped as profits have risen

Hapag-Lloyd’s deputy chief financial officer, Mark Frese, insisted the group still expects a net cash position, justifying the group’s planned €11.1 billion dividend this month.

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The payments come amid criticism of the industry’s relatively low tax rates because of the way levies are calculated.

Last year, a group of French lawmakers proposed a 25 percent tax on the “super profits” accumulated by the domestic airline CMA CGM, privately owned by the billionaire Saadé family.

The lawmakers’ calls have echoed as oil majors ExxonMobil and Shell, hit hard by windfall taxes, are forecast to pay out a combined $23.3 billion this year, just a fraction of the combined dividends of Maersk and Hapag-Lloyd .

EU member states have allowed shipping companies to be taxed according to their fleet capacity to prevent them moving to low-tax states. However, this meant that as their profits soared, their effective tax rate fell.

In 2022, Hapag-Lloyd’s tax payments corresponded to only 1 percent of pre-tax profits, compared to 10 percent in 2019. Maersk’s effective tax rate fell from 49 percent to 3 percent in the same period.

Bar chart of income taxes as a percentage of pre-tax profits showing that Hapag-Lloyd's tax rate fell as profits rose

“You might consider it.” [this system] with tax support, [but] it is difficult to see the link between tax support and social benefit,” said Olaf Merk, a shipping researcher at the OECD’s International Transport Forum.

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He drew attention to the fact that shipping was exempted from the agreement on a minimum 15 percent corporate tax reached during the negotiations in the OECD as a result of the lobbying of the industry.

“It’s shocking that the sector is taxed so little, so when they have these big profits they can just send them to shareholders,” said Aoife O’Leary, chief executive of campaign group Opportunity Green.

According to Merk, more of the industry’s profits could have been invested in reducing emissions.

O’Leary said shipping groups should “pay for their pollution”.

He added that the disappointing level of investment in fleet greening was “not surprising given the lack of strong regulation to force shipping to decarbonise”.

Hapag-Lloyd’s Frese has defended the shipping tax system, saying it “works” and has supported the industry during difficult years when it failed to make a profit.

Maersk said tax rules are often debated when profits are high, but added that shipping is a “cyclical industry” and politicians have a responsibility to make changes.

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