Maersk Line, the world's largest container carrier, said it will cut 9 percent of its shipping capacity on Asia to Europe, its largest trade route, in an effort to restore profitability, Bloomberg reports. Maersk Line will take out the ships by setting up a vessel- sharing agreement with CMA-CGM SA, the world's third-largest carrier, the Copenhagen-based company said today by e-mail. Maersk Line didn't specify what it will do with the ships and declined to comment further pending its Feb. 27 earnings report.
Container lines have been losing money as freight rates plunged after the shipping industry added too many ships in anticipation of a trade recovery. Maersk said today it will consider additional measures to cut capacity, including changing time-charter agreements, laying up vessels and sailing slower where possible.
“We believe this signals a clear change in market strategy from Maersk, and should be positive for rates and utilization on the Asia-Europe trade,” Lars Erich Nilsen, an analyst at Oslo- based Fearnley Fonds ASA, said in an e-mailed note. “Maersk is now even open to lay-ups, which it recently was not.”
Nils Smedegaard Andersen, chief executive officer of parent A.P. Moeller-Maersk A/S, said in November the unit wouldn't cut capacity because its size meant it could outlast rivals during periods of losses. In 2009, the first year the industry failed to turn a profit since the 1970s, Maersk Line and other carriers cut capacity to help restore profits a year later.
Losing Money
Maersk and all carriers on the Asia to North Europe route have lost money since the third quarter of 2011, Philip Damas, a director at Drewry Shipping Consultants Ltd., said today. Vessel use on the route has been at 83 percent so far this year, and lines typically don't make money until the rate rises above 85 percent, Damas said.
It's a “surprise that Maersk is doing it now,” Damas said in a phone interview from London. “We expected that carriers would have to take capacity out by the third quarter of 2012.”
There were 490 ships offering 52 different services on the Asia-Europe route at the end of the year, according to Clarkson, the world's largest shipbroker. Maersk Line deploys about 100 vessels on the route, the company said in August.
Maersk shares rose as much as 2.7 percent, adding to gains after the announcement. The stock advanced 1,160 kroner, or 2.5 percent, to 47,000 kroner at 1:42 p.m. in Copenhagen.
Defending Market Share
Container traffic growth on the route will slow to 1.5 percent this year from 2.8 percent in 2011 as European consumption weakens, Maersk Line said today, citing a January report from Alphaliner. That compares with estimated container fleet capacity growth of 8.3 percent, Maersk Line said, citing the Paris-based shipping forecaster.
“With this adjustment we are able to reduce our Asia- Europe capacity and improve vessel utilization without giving up any market share we have gained over the past two years,” Maersk Line CEO Soeren Skou said in the statement. “We will defend our market share position at any cost, while focusing on growing with the market and restoring profitability.”
Still, cutting capacity usually signals a company is scaling back its target for market share, said Drewry's Damas.
“It appears that Maersk has stopped its policy of going after market share,” he said. Rates are likely to rise because of Maersk's decision, he said.
Price Increases
Maersk Line said last month it will attempt to increase the price it charges to transport a 20-foot container from Asia to Europe by as much as $775, doubling the current price, to help restore profits.
Maersk Line, which has a global market share of about 16 percent, said in November it would lose money in 2011, lowering a previous forecast for a “modest” profit.
Global freight rates dropped on average 25 percent last year, according to RS Platou Markets AS. Prices fell the most on Asia-to-Europe routes, where the decline was almost 60 percent, the Oslo-based broker said in a Jan. 4 note.
CMA-CGM, based in Marseille, France, on Dec. 1 said it will start a vessel-sharing accord with Mediterranean Shipping Co., the world's second-largest container line.
Container lines have been losing money as freight rates plunged after the shipping industry added too many ships in anticipation of a trade recovery. Maersk said today it will consider additional measures to cut capacity, including changing time-charter agreements, laying up vessels and sailing slower where possible.
“We believe this signals a clear change in market strategy from Maersk, and should be positive for rates and utilization on the Asia-Europe trade,” Lars Erich Nilsen, an analyst at Oslo- based Fearnley Fonds ASA, said in an e-mailed note. “Maersk is now even open to lay-ups, which it recently was not.”
Nils Smedegaard Andersen, chief executive officer of parent A.P. Moeller-Maersk A/S, said in November the unit wouldn't cut capacity because its size meant it could outlast rivals during periods of losses. In 2009, the first year the industry failed to turn a profit since the 1970s, Maersk Line and other carriers cut capacity to help restore profits a year later.
Losing Money
Maersk and all carriers on the Asia to North Europe route have lost money since the third quarter of 2011, Philip Damas, a director at Drewry Shipping Consultants Ltd., said today. Vessel use on the route has been at 83 percent so far this year, and lines typically don't make money until the rate rises above 85 percent, Damas said.
It's a “surprise that Maersk is doing it now,” Damas said in a phone interview from London. “We expected that carriers would have to take capacity out by the third quarter of 2012.”
There were 490 ships offering 52 different services on the Asia-Europe route at the end of the year, according to Clarkson, the world's largest shipbroker. Maersk Line deploys about 100 vessels on the route, the company said in August.
Maersk shares rose as much as 2.7 percent, adding to gains after the announcement. The stock advanced 1,160 kroner, or 2.5 percent, to 47,000 kroner at 1:42 p.m. in Copenhagen.
Defending Market Share
Container traffic growth on the route will slow to 1.5 percent this year from 2.8 percent in 2011 as European consumption weakens, Maersk Line said today, citing a January report from Alphaliner. That compares with estimated container fleet capacity growth of 8.3 percent, Maersk Line said, citing the Paris-based shipping forecaster.
“With this adjustment we are able to reduce our Asia- Europe capacity and improve vessel utilization without giving up any market share we have gained over the past two years,” Maersk Line CEO Soeren Skou said in the statement. “We will defend our market share position at any cost, while focusing on growing with the market and restoring profitability.”
Still, cutting capacity usually signals a company is scaling back its target for market share, said Drewry's Damas.
“It appears that Maersk has stopped its policy of going after market share,” he said. Rates are likely to rise because of Maersk's decision, he said.
Price Increases
Maersk Line said last month it will attempt to increase the price it charges to transport a 20-foot container from Asia to Europe by as much as $775, doubling the current price, to help restore profits.
Maersk Line, which has a global market share of about 16 percent, said in November it would lose money in 2011, lowering a previous forecast for a “modest” profit.
Global freight rates dropped on average 25 percent last year, according to RS Platou Markets AS. Prices fell the most on Asia-to-Europe routes, where the decline was almost 60 percent, the Oslo-based broker said in a Jan. 4 note.
CMA-CGM, based in Marseille, France, on Dec. 1 said it will start a vessel-sharing accord with Mediterranean Shipping Co., the world's second-largest container line.