COPENHAGEN: Container shipping freight rates are profitable again and could rise further if trade picks up over the summer, the head of A. P. Moller-Maersk, the Danish shipping and oil group, said.
The recovery in rates could signal a brighter outlook for the global shipping industry, which has struggled to emerge from a four-year slump caused by oversupply of vessels and weak demand due to the sluggish world economy.
“At the moment, freight rates are at a level where container transport is earning money,” Chief Executive Nils Smedegaard Andersen said in a presentation to the Danish Society of Financial Analysts.
“We are still working to get higher rates,” Andersen said. “We hope there will be a pick-up in world trade after the summer.”
Last month, Andersen had said recent rate increases meant most container shipping lines were probably operating at breakeven levels.
This contrasts with last year when rates plunged toward the middle of the year, which took A. P. Moller-Maersk’s Maersk Line into the red for the year.
Results this year for Maersk Line, the world’s biggest container shipping group and a barometer of world trade, are expected to stay negative or “up to neutral,” assuming that a rate recovery since March continues, the group has said. Andersen said last month in the company’s first-quarter results presentation that he hoped Maersk Line would get into positive territory this year, but that would require higher freight rates.
But he said on Thursday that the oversupply of ships weighing down the industry would persist for several more years.
“We think there will be overcapacity in container shipping until 2016-17,” he said.
Andersen said Maersk Line had the fleet capacity it needed to maintain its market share and did not plan to buy more vessels.
Maersk Line has said its global container shipping market share was 15.5 percent in 2011 and it had 17.8 percent of the market on Asia-Europe routes.
“With the capacity we have, we are well equipped for the next years,” Andersen said. At some point, we will go out and order containers, but we have no plans to go out and buy ships.”
“We have roughly the ship capacity that’s needed to maintain our market share in the next five years,” he said.
Andersen said he expected the group’s oil rig arm, Maersk Drilling, to grow considerably in the years to come.
“We see strong interest from big oil companies to work with us,” he said, pointing to recent contracts for the company.
“Maersk Drilling will be a considerably bigger business than it is at the moment,” he said.
In another development, Maersk Tankers, a unit of A.P. Moller-Maersk, plans to break ranks as the first tanker operator to impose a fuel surcharge in its struggle to overcome weak freight rates and a world trade slump.
Bunker fuel surcharges have been introduced for dry-bulk, container and roll-on/roll-off shipping but such a charge would be a novelty in the tanker business.
World shipping, including tanker transport, has been hit hard by an oversupply of vessels in a market where demand growth is weak, especially since the global economic downturn at the end of 2008.
“We will have this done in one way or another,” Maersk Tankers Chief Executive Hanne Sorensen said in an interview at the company’s headquarters. She did not say how big the surcharge would be.
The industry slump, now into its fourth year, has knocked tanker shipping companies broadly into the red and some into bankruptcy. The world’s biggest independent tanker operator Frontline has said it will sell some ships to pull out of the crisis. The bunker fuel used by ships is the single largest operating cost for Maersk Tankers, which lost $151 million last year, and the surcharge would be an additional fee imposed by shipping companies when fuel prices rise.
“To start with we can make our customers aware of how much bunker makes up of the bills we send them,” said Sorensen, adding that the oversupply of vessels had a few years to run and that prices remained far from satisfactory and worse than expected.
Sorensen, who became chief executive in February, acknowledged it could be difficult being the first tanker shipper to impose a surcharge but noted that container rivals followed Maersk Line when it made the move.
“Because of the way billing takes place in the tanker industry, we do not get compensated at all for the increase in bunker costs that has taken place,” Sorensen said.
Billing is largely based on a rate scale created by Worldscale in London.
Sorensen said she was not opposed to Worldscale, as it had helped standardise and simplify practices in the industry, but said the annually published rates were based on data up to 15 months old.
“This scale has not risen nearly as much as bunker costs have increased since 2006,” Sorensen said.
She said management’s focus was now on boosting revenues.
“It is clear that we are doing all we can to reduce costs, work smarter and so forth,” she said. “There is still a lot to do but that only means a little in relation to increasing the top line.”
Maersk Tankers is a large player in oil product tankers, but also has supertankers, known as very large crude carriers (VLCCs). Some of its vessels are in a pool called Nova Tankers.
Sorensen said that Maersk Tankers could in the future be involved in fewer segments of the business and would not enter more sectors.
She said many ships were still on order for the crude oil tanker market, and volume growth rates were low.
“So it can take time before there is a balance,” she said. “But we can experience peaks, as we did in the spring when we got reasonable rates.”
“They are not break-even rates but much better than expected,” Sorensen said.
