By R. BRUCE STRIEGLER
Maersk Line, the world’s biggest container shipping company, revealed in early February it was cutting 9 per cent of its vessel capacity on Asian-European trade routes in an attempt to deal with oversupply. Maersk says it can achieve the reduction through a vessel-sharing agreement with the French container line CMA CGM. Maersk referred to an Alphaliner forecast that Asia-to-Europe container traffic would slow to 1.5 per cent in 2012 from an estimated 2.8 per cent in 2011 due to weakening economies in Europe. At the end of 2011, there were 490 ships offering 52 different services on the Asia-Europe route, 100 of those deployed by Maersk.
In January, the company declared it was taking rate increases in March to $775, more than doubling the current spot market rate on all dry and reefer cargo from Asian ports to north European and Mediterranean destinations. Maersk may make further announcements when it releases its next earnings report.
Maersk also pointed out the contrast of weak volume and the anticipated growth of the international fleet, set to grow by 8.3 per cent in 2012. On February 20, the chairman of the International Chamber of Shipping, Spyros Polemis, called for restraint from ship owners and intervention from governments to end the battle being waged by shipbuilders from China, Korea and Japan for market share. Mr. Polemis said that a moratorium on new building orders was needed to curb ship owners’ placing orders for far too many ships, with far too few cargoes to carry.
Analysts have noted the capacity reduction is a significant change of Maersk Line’s strategy throughout 2011, when it accepted lower rates in anticipation that rivals would withdraw capacity or go under. The analysts also suggest that the recently announced rate hikes of $700-$900 per 20-foot container along with capacity reductions might improve the shipping industry’s earnings potential for 2012. Shipping companies around the world are cutting capacity and seeking alliances or new partnerships after suffering losses in 2011, while still preparing to introduce new rates in March 2012.
Competition creates new strategies and alliances
Maersk remains confident that it can maintain competitive service for customers even with the capacity reductions. The agreement with CMA CGM allows Maersk to cut the cost of serving the West Mediterranean markets while freeing vessels for deployment where needed. The company’s announcement also noted that it is considering other opportunities to reduce capacity including redelivery of time charter tonnage, the use of layups and slow-steaming where appropriate. Perhaps heeding Mr. Polemis’ warning, it also confirmed it will not declare the option for the last ten Triple-E vessels ordered in the middle of 2011 and due for delivery by 2015.
Through 2011, carriers launched new services on the key Asia-Europe route, including the introduction of the latest new 13,000-TEU capacity ships from South Korea. Freight rates plummeted during the year. Created in December 2011, the G6 Alliance of deep-sea carriers signalled in early February that it is advancing the launch of its Asia-Europe service to coincide with the March rate increase. The G6 Alliance is a rival both of Maersk’s and of the joint partnership between Mediterranean Shipping and CMA CGM. In December 2011, Mediterranean Shipping and CMA CGM, the world’s second- and third-largest ocean carriers, announced that they are joining forces on key trade routes.
Recently, the 15 members of the Transpacific Stabilization Agreement (TSA) indicated they will impose an increase of US$300 per FEU (40-foot equivalent unit) as of March 15. This follows steep rate increases recently announced by most major carriers on the Asia-Europe routes ranging from $300 to $800 per FEU taking effect in March. Following TSA’s move, Canada Transpacific Stabilization Agreement has also said its member carriers will raise rates $400 per FEU from March 15 onwards.