Bloomberg News

Container-Ship Glut Clips Peak Season Asia-EU Rates, Maersk Says

September 14, 2011

Sept. 14 (Bloomberg) -- A.P. Moeller-Maersk A/S, the No. 1 container line, said it’s struggling to raise peak-season rates on the Asia-Europe shipping route, the world’s second-busiest, as an influx of new vessels leads to a glut in capacity.

The Danish company’s Maersk Line unit imposed a “pretty ok dividend” on most other routes, with the exception of Asia-North America, the busiest global flow, where expansion has been “very modest,” Chief Executive Officer Eivind Kolding said in London.

“Most of the new big ships actually go to northern Europe, so this is where you have the bigger problem,” the CEO said in an interview. “It’s difficult to make a decision to pull a lot of capacity, especially if hypothetically one line should decide to do it, then actually the rest of the market will benefit.”

Maersk has implemented rate increases on some Mediterranean routes since the start of the peak season, which began on Aug. 15 and runs until Nov. 30, Kolding said, and trade in emerging markets and some regional routes is showing “double digit” growth. Still, the CEO said he’s concerned that “nervousness” in financial markets could spill over into the wider economy.

“We have a much more mixed picture than in 2009, where we saw a collapse basically across the board,” he said. “We’re slightly concerned because we did see a good momentum of recovery, not a fast, but a fairly fast, recovery.”

Holiday Stockpiles

Europe usually imports more goods in the third quarter as shops stockpile for the Christmas and New Year holidays, a gain that may be curbed as retailers anticipate that concern about economies and jobs will hurt consumer spending.

For the moment, fleet utilization remains at more than 90 percent on Asia-Europe routes, matching the global average, Kolding said, giving shipping lines little incentive to slash capacity, especially with new vessels arriving later this year.

While growth in container volumes has slowed for four consecutive quarters, declines are nowhere near the 22 percent contractions seen in the first half of 2009. Only a drop of a similar magnitude will force all container lines to conclude that pulling capacity is the right strategy, he said.

The industry may lose $2.5 billion to $3 billion this year, according to Philip Damas, director of liner shipping and supply chains at Drewry Shipping Consultants Ltd. in London. Owners and operators lost $20 billion in 2009, when the global container trade contracted for the first time ever, Drewry says.

“People are definitely more concerned today than they were, say, around the end of June,” Kolding said. “We definitely hear some concerns from our retail customers as well. It’s Europe, North America and Japan that are negative. The rest of the world is doing very much more nicely.”

Kolding spoke Sept. 12 after Maersk said it will deploy 70 ships on the first guaranteed daily sailings between Europe and Asia in a bid to win market share as demand stutters. The Copenhagen-based company will also offer fixed cut-off times and a discount of at least $100 for delayed containers.

--Editors: Chris Jasper, Chad Thomas.

To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net; Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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