Wednesday, February 29, 2012

Container Shipping Profits Down, Freight Route Capacity Cut

Clock Is Ticking as Maersk Faces its Competition
Shipping News Feature

WORLDWIDE – DENMARK – There is a war of attrition developing in the container shipping market and, as detailed in our article earlier this week, tactical alliances are being forged as every major box carrier faces an uncertain future. Just after the publication of our last piece on what constitutes a freight cartel came news from the world number one container shipping line – and it wasn’t good.

Maersk Line is frequently referred to in press articles as a ‘barometer of world trade’ and, despite this overused definition it is actually often an accurate one. A.P. Moller-Maersk have been here before and have hedged their bets by diversifying into the energy markets and beyond but the core of this great company sits inside a twenty foot box and with the purchase of their new Triple E series of ships weighing in at 200,000 tonnes each adding another 360,000 TEU of capacity by 2013 to the company fleet, which already has a capability well in excess of 2 million, something had to give.

The result is a downsizing of Maersk plans and a company statement says that the company’s outlook for 2012 is subject to considerable uncertainty and cites the global economy and sensitivity in several key areas as a potential weak spot. A bunker fuel price hike (or drop) of $10/barrel has an effect equating to $100 million for Maersk, a jump or fall of $100 per box in the forty foot equivalent freight rate would mean a $900 million reaction up or down. Despite the latest figures claiming an increased market share the huge drop in rates in the past two years as the giants of the industry slugged it out has meant Maersk group profits dropped to $3.27 billion, a fall of 46% in the past year. Maersk Line itself recorded a loss of $0.6 billion against the profit in 2010 of $2.6 billion.

It was only last September that Maersk introduced its bullish ‘Daily Maersk’ service from Asia to Europe in a confident blaze of publicity, now the group intends to reduce service capacity on the route by around 9% and this has been seen by many as a complete reversal of company tactics historically. Whereas previously many saw the giant prepared to outlast all competitors and watch them fall by the wayside tripped up by unsustainable rates this reduction in capacity is being seen as the first chink in the previously unsullied Danish armour.

Battle lines have been drawn and the mercenary armies of previously competing companies have teamed up to face off an enemy which will, as the biggest force of all, have more than its share of overcapacity as the months pass and more tonnage slips from the blocks. The problem for all the box specialists however may be when we do witness a major casualty and a glut of ships reach the open market. Historically in all transport sectors that is precisely when speculators who know the freight industry snap up the bargains and cherry pick from the profitable routes.

Things may get very dirty a little sooner than expected but sheer size may be the thing which counts most as the situation develops.