The world’s largest container companies defend record dividends

The world’s two largest publicly traded container shipping companies have defended plans to pay out dividends worth billions to shareholders despite the threat of slumping profits and pressure for low tax rates.

Danish group AP Møller-Maersk and German rival Hapag-Lloyd are planning a combined dividend payout of $22.6 billion, more than 33 times the amount paid in 2019.

Although the record payouts follow a record period for earnings, earnings are expected to fall sharply this year as global trade slows on the back of the economic slowdown.

Both groups have forecast an earnings drop of around 70 percent in 2023, with their combined payout expected to be at least 30 percent higher than earnings this year.

Freight forwarders’ profits have risen largely due to increased demand for online shopping during the height of the Covid-19 pandemic, as well as supply chain bottlenecks that have pushed up the cost of delivering goods by sea.

Maersk said its proposed dividend is equivalent to 37.5 percent of its underlying earnings for 2022, adding that this is “fully consistent” with its policy of paying between 30 percent and 50 percent of earnings.

Column chart of ($bn) showing Maersk's dividend payouts increased as earnings increased

Mark Frese, Hapag-Lloyd’s chief financial officer, justified the group’s planned £11.1 billion dividend this month.

The payouts come amid criticism of the comparatively low tax rates the industry enjoys due to the way levies are calculated.

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

The lawmakers’ demands have resonated as oil majors ExxonMobil and Shell, which have been hit hard by windfall taxes, are expected to pay out a combined $23.3 billion this year, just a fraction higher than the combined dividends of Maersk and Hapag-Lloyd is located.

EU countries allowed shipping companies to tax fleet capacity to discourage them from shifting to low-tax states. But that meant their effective tax rates fell as their profits soared.

In 2022, Hapag-Lloyd’s tax payments represented just 1 per cent of pre-tax profit, compared to 10 per cent in 2019. Maersk’s effective tax rate fell from 49 per cent to 3 per cent over the same period.

Column chart of income taxes as a percentage of pre-tax profit, showing that Hapag-Lloyd's tax rate has fallen as profits have increased

“You could consider that [this system] a tax subsidy, [but] It is difficult to see the link between the tax subsidy and any societal benefit,” said Olaf Merk, shipping researcher at the International Transport Forum of the OECD.

He pointed out that shipping has been exempted from an agreement on a global minimum corporate tax rate of 15 percent, agreed at talks with the OECD after industry lobbying.

“It amazes me that the sector is taxed so little, and when they have these record-breaking profits, they can just hand them out to shareholders,” said Aoife O’Leary, executive director of campaign group Opportunity Green.

Merk said more industry profits could have been invested in reducing emissions.

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

She added that the disappointing level of investment in fleet greening is “not surprising” in the absence of strict regulations forcing shipping to decarbonize.

Hapag-Lloyd’s Frese defended the tax regime for shipping, saying it “worked” and had supported the industry during difficult years when it was a matter of turning a profit.

Maersk said tax rules are often up for discussion when profits are high, but added that shipping is a “cyclical industry” and it is the policy’s responsibility to make changes. The world’s largest container companies defend record dividends

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