Maersk Line raise Latin American cargo rates by 30 pct this year
Maersk Line, the container-ship division of Denmark's A.P. Moller-Maersk A/S , plans to raise its Latin American cargo rates by as much as 30 percent this year to stanch losses and pay for 16 ships being built for the region, the company said, Reuters reports.
The decision to raise Latin American rates comes as Maersk, the world's largest container shipping company and a barometer for world trade, struggles to recover from a world economic downturn.
Fuel prices for the company's ships have tripled in the last five years while shipping rates have fallen by 10 percent, leading to quarterly losses or slim profits, Robbert Jan van Trooijen, the company's chief executive for Latin America, told Reuters on Thursday.
Without higher freight rates, it will be difficult to recoup the company's $2.2 billion investment in 16 container ships for its Latin America service, he said. The so called SAMMAX vessels, which can carry 7,500 twenty-foot equivalent containers (TEUs), are the largest that can serve the region's main ports.
Ten are complete and most of those in operation. The rest are expected to be delivered from South Korean shipyards by the end of 2013, he said.
"Our profit margins right now, when we have them, are in the single digits. We need to raise these into the double digits to cover our cost of capital," Trooijen said. "We need to raise returns to recoup the investment on our ships."
Maersk on Thursday raised its 2012 profit outlook, but said its performance would still fall below 2011 levels. Average freight rates fell by 9 percent in the first quarter compared with a year earlier after having fallen 1 percent in the fourth quarter of 2011.
The container shipping division lost 3.40 billion Danish crowns ($580 million) in the first quarter of 2012, compared with a profit of 2.32 billion crowns a year ago.
On Thursday Maersk stock fell 6.1 percent in Copenhagen, the biggest decline among European blue-chip stocks. It was the company's biggest drop in nine months and the stock's lowest close since Dec. 29.
Maersk is looking to Latin America to help reverse the group's recent difficulties and pay for other large investments in the region, Trooijen said.
Latin America accounts for about 14 percent of the world's container trade and Maersk has about 15 percent of the Latin American market. Brazil represents about 20 percent of Maersk Line's Latin American business.
The Maersk Line investment in the SAMMAX vessels is about a quarter of its parent company's $8.17 billion of investments in the region, most of which is being made in Brazil.
Maersk's port terminal unit is investing $450 million upgrading facilities at the Port of Santos, Latin America's largest port by value of cargo moved.
"The ports in Brazil still have a long way to go before they become competitive," Trooijen said. "Ideally a container should move through a port in 12 hours at most. In Brazil the average is 14 days."
This, he said, has more to do with bureaucracy and customs clearing activities in the so-called back yards, rather than service on the docks, an area controlled by Maersk's logistics department.
Ports in Brazil though, even where the docks are modern and efficient, remain too small for Maersk's largest and most efficient ships.
The SAMMAX vessels being built for Latin America, while among the largest to visit Brazilian ports, have half the carrying capacity of Maersk's biggest ships that service Asian, North American and European ports, he said.
Maersk's oil and oil service business is in the middle of a $4.26 billion investment plan in Brazil's rapidly expanding offshore oil business. Of that, $3 billion is for oil exploration and acquisitions in Brazil and $1.26 billion for the construction of the FPSO Maersk Peregrino, a floating, production, storage and offloading vessel.
Maersk is also building a $992 million container terminal in Costa Rica, spending $170 million on a container factory in Chile and $200 million for the construction of oil service vessels, also in Chile.