Maersk Line sees shipping overcapacity for five years

Monday, 7 October 2013 00:00 -     - {{hitsCtrl.values.hits}}

  • Maersk Line CEO expects no easy solution for overcapacity
  • Says growth rate from before crisis will not return
  • Shipper has ordered 20 mega vessels with lower fuel consumption
COPENHAGEN (Reuters): Maersk Line, the world’s biggest container shipping company, sees no quick fix for overcapacity in the industry that it says will continue for at least five years. The company, part of Danish oil and shipping group A.P. Moller-Maersk Group, is a bellwether of global trade as its ships make up 15% of world container shipping capacity. The shipping industry has been battling overcapacity since the financial crisis because new vessels ordered before the downturn has flooded the market. “We will without doubt in five years time from now have an industry with plentiful capacity,” Maersk Line Chief Executive Soren Skou told the Reuters Nordic Investment Summit last week. “We cannot create demand by lower prices. It is more important to remove capacity,” he said. When the economic crisis hit in 2008, global trade and shipping companies’ orders for new vessels were as much as 50% of the existing fleet. The overcapacity has driven spot rates on the main routes between Asia and Northern Europe to loss-making levels. Maersk Line cut its fleet container capacity by about 1% between the second quarter of 2012 and the same period this year, but it has not announced any plans to cut further. Shipping analyst Jacob Pedersen from Sydbank described the current market as brutal. “If competitors follow Maersk Line’s strategy and adjust capacity it will benefit the entire industry via significantly better freight rates,” he said. Among 12 big container shipping lines, only two, Maersk Line and France’s CMA CGM reported an operating profit in the first six months of 2013. Before the crisis, Maersk Line and other container shipping companies had growth in demand for seaborne containers of more than 10% a year. But those days will not return, Skou said. “Growth in the container industry in the future is more related to global economic growth,” he said. He said he expected global demand for seaborne containers to increase 2-3% in 2013. Parent A.P. Moller-Maersk Group lowered a near-term profitability target (return on invested capital) for Maersk Line to 8.5% per year from 10% at the group’s capital markets day last week. The long-term profitability target for the container business was held at 10%. To cope with the tough market conditions, Maersk Line managed to reduce total costs per container by 12.7% in the second quarter from a year earlier. The decrease was mainly driven by lower fuel costs and logistical route efficiencies. Maersk Line uses about 8 million tons of fuel a year for its 596 vessels, costing around $ 5 billion. The hunt for lower fuel consumption has been high on the agenda in recent years. The company has ordered 20 Triple-E class mega vessels with a capacity of 18,270 containers each. The vessels use 50% less fuel per container than the average for container ships on routes between Asia and Europe. “And they are 20% more fuel efficient than Emma-class ships that are the biggest and most efficient at the moment,” said Skou. Maersk Line operates eight E-class ships. Three of the Triple-E class ships have already been delivered to the shipping company from Daewoo Shipbuilding and Marine Engineering’s shipyard in South Korea.