Lines sink each other
Quarter I, 2013, saw a slight growth of average freight rates for maritime container transportation – some 4.5%. However, hot competition between lines, high bunker prices and negative situation at conventional trade directions give no rise to optimism.
The revenue of the largest operator of container lines, Maersk Line, has not changed significantly in the first quarter of 2013. It reached $6.3 bln with a net profit of $204 mln. Average freight rates gained 4.7% while the traffic volume fell by 4%. The capacity of Maersk fleet climbed by 4.2%.
According to the company’s report, the significant turnaround in the financial performance was achieved through lower costs as revenue was unchanged. Total cost per FFE decreased by 7.1% mainly driven by vessel improved network efficiencies.
«Maersk Line is much more competitive and has gained strength to deal with the challenging shipping markets», says Group CEO Nils S. Andersen.
Maersk Line analysts think that the demand for marine container shipping will grow by 2-4% in 2013 with the growing import of risk economies. No growth is expected at conventional Asia-Europe direction.
Positive results were also achieved by Hapag-Lloyd with revenue growth 3.1%, year-on-year, to EUR 1.65 bln. In the accounting period, net loss fell by 29.3% to EUR 93.6 mln. Improved financial performance was mainly attributable to a rise in the average freight rate, which was 4.2% up on the previous year. In addition to this, the transport volume edged up slightly to around 1.33 million TEU (prior year period: 1.32 million TEU). The bunker price averaged USD 627/tonne in the first three months of 2013 against $667/tonne last year (-6%).
“Liner shipping started 2013 on a higher level than in 2012. However, the competition remains extremely challenging. Rates have come under tangible pressure since April, especially on the important East-West routes, and competition is also becoming tougher on Latin America trades,” said Michael Behrendt, Chairman of the Executive Board of Hapag-Lloyd. “It is important that rates soon return to a sensible, profitable level. This is absolutely essential and in the interests of everyone who relies on a functioning, reliable maritime shipping industry – from shipping lines to shippers. We cannot afford a repeat of last year’s non-existent peak season.”
APL also counts on cost reduction. “The delivery of our new and more fuel-efficient vessels has helped us reduce our vessel slot costs,” said APL President Kenneth Glenn. “We continue to reap benefits from fuel, operational and other cost efficiencies. Profit prioritisation remains our target, as we keep our focus on optimising yield and adopting stricter capacity management as necessary.”
According to MOL Group, with a tendency originating in 2012 the number of container carriers with the capacity up to 5,000 TEUs is decreasing while the number of larger vessels, especially those exceeding 10,000 TEUs is going up.
For example, in May CMA CGM fleet accepted the third container carrier with the capacity of 16,000 TEUs - JULES VERNE, 396 meters long and 54 meters wide.
The work’s largest container carrier Maersk Triple-E is to be floated out in June 2013. 18,000-TEU vessel will be the first in the series of 20 vessels ordered by Maersk.
Soren Skou, the chief executive of Maersk Line expects container ship capacity to grow 11%. The industry is likely to scrap more vessels, sail them at even slower speeds and idle more ships in order to balance supply with growth, Soren Skou beleives.
"We expect to get a reasonable balance between demand growth and supply growth. But it requires that the industry acts in a reasonably fair manner," Mr. Skou said, referring to container shippers avoiding engaging in a fare war to attract customers.
In 2013, 2% of the global container vessel fleet may be scrapped, and the percentage of ships that are idling may grow at least one percentage point from the current 5% to 6%, he said.
So, container lines seem to focus on anti-crisis strategy implying cost reduction and replacement of smaller vessels with large capacity container carriers in order to cut slot costs. With this, the industry Started competing for the markets of unstable economies as conventional markets are not growing. In general, there is a risk of a situation with numerous giant container carriers against lack of demand growth at conventional directions and hot competition at high risk directions which can “implode” at any moment. If the situation is aggravated by a tariff war only well-diversified groups will be able to survive then as they can cover the loss of the shipping industry with the revenues of other segments.
Vitaly Chernov