Maersk Bets Against European Recovery

Maersk Line (MAERSKB) is betting European efforts to escape a recession this year will fail as the world’s biggest shipping company shifts its business away from the debt- plagued region.

“We think there will be negative growth in Europe this year and that is affecting our view of Asia-Europe trade,” Trond O. Westlie, chief financial officer of A.P. Moeller-Maersk A/S (MAERSKB), the owner of Maersk Line, said yesterday in an interview in Copenhagen. “The solution that Europe is trying to take is different from the solution that the U.S. is taking. We believe that general growth will be higher in the U.S.”

Europe’s bid to end its crisis by imposing budget cuts on its most indebted members is showing signs of choking economic growth. The 17-nation euro area will shrink 0.3 percent this year, as eight countries suffer economic contractions, the European Commission said last week. European imports fell 0.9 percent in December and Maersk, the largest carrier on the Asia- to-Europe route, plans to cut 22,000 containers a week to respond to the slump. That represents about 2 percent of the region’s sea-borne trade.

“The world is going to have slow growth, things are going to be volatile and this will be the case for a somewhat long period of time,” Westlie said. “Our effective growth rate is going to be challenged because we have a relatively higher exposure to Asia-to-Europe trade compared to our exposure elsewhere in the world.”

Container Losses

Maersk’s container unit lost 2.88 billion kroner ($521 million) in 2011, compared with a 14.9 billion-krone profit a year earlier. The division last year generated 39 percent of its volume from the Asia-to-Europe route, where container rates slumped 19 percent, Maersk said yesterday.

The company’s shares, which lost 25 percent in 2011, rose 0.4 percent as of 12:14 p.m. local time to 44,000 kroner.

“Maersk won’t scale down on Asia-Europe, it’s too important a route for them in the long term,” said Jacob Pedersen, an analyst at Sydbank A/S. “But as other markets grow faster we will see a development -- driven by basic math -- with Europe becoming relatively less important for the company, and Africa and Latin America growing in importance.”

Maersk, which is also struggling to adjust to over- capacity, has responded to Europe’s turmoil by deploying fewer ships for the route. The company said Feb. 17 it will cut capacity on Asia-to-Europe trade by 9 percent in an effort to avoid further losses. In contrast, Maersk has no immediate plans to cut vessels to the U.S. or high-growth markets, Westlie said.

Europe’s Issues

“The question as to when we’ll see demand picking up depends on when euro-zone leaders will come together and resolve their issues -- and there are quite a few issues,” he said.

Euro area leaders have yet to agree on how to bolster their rescue fund as U.S. policy makers including Treasury Secretary Timothy F. Geithner have urged Europe to make crisis-fighting efforts “credible.”

The U.S. economy will grow 2.2 percent this year, versus a 0.4 percent contraction in the euro area, according to the median of economist estimates compiled by Bloomberg. Brazil and South Africa will both expand 3.4 percent, the estimates show.

Global container volumes will grow 4 percent to 6 percent in 2012, down from 7 percent in 2011, Maersk said yesterday. Volumes for Asia-to-Europe trade will grow less than the global average, while trade involving Latin America and Africa will beat average levels, the company estimates.

Maersk last year added ships to its African and Latin American services, where volumes increased 19 percent and 17 percent, respectively. The company is channeling investments into growth markets outside western Europe as it seeks to benefit from more “stable” container rates, it said.

“We have been good at focusing on our positions in Africa and Latin America,” Westlie said. “We have a good position in those two regions.”

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net.

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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