A.P. Moeller-Maersk A/S (MAERSKB)’s fleet of 1,300-foot container ships has worsened a capacity glut that’s depressing freight rates and eroding earnings, Kuehne & Nagel International AG (KNIN), the No. 1 sea-freight forwarder, said today.
The three Triple-E class ships, the largest in the world, are exacerbating the effects of slowing demand on routes linking Asian exporters with consumers in Europe, Kuehne & Nagel Chief Financial Officer Gerard van Kesteren said in an interview after the company’s third-quarter profit missed analyst estimates.
Maersk has ordered 20 Triple-E vessels as the Copenhagen-based company seeks to cut operating costs per container and grab a bigger slice of a market that’s struggled to recover from the global slump and European debt crisis. Kuehne & Nagel, whose stock fell the most since March on the profit figures, is among companies most exposed to the capacity glut as it buys deck space from Maersk and its competitors to consolidate shipments.
“There is structural overcapacity, and now the 18,000-container ships are being put into production by Maersk, creating extra overcapacity,” van Kesteren said. “Shipping lines are trying to get business back. It’s cutthroat competition.”
Shares of Schindellegi, Switzerland-based Kuehne fell 4.3 percent, the steepest intraday decline since March 4, and were trading 4 percent lower at 113 francs as of 4:02 p.m. in Zurich.
A recent rate increase of $1,600 per 40-foot box hasn’t held and prices that began at below $1,000 and spiked at more than $2,500 are now at about $1,500 for some shipments to northern Europe, said Philip Damas at Drewry Maritime Equity Research in London, adding that while companies will lift fees by $1,800 from Nov. 1 the gain will “erode” quickly.
“There is persistent overcapacity, and the shipping companies are not reducing it enough,” he said. “The Triple-E is one factor, but there are a lot of big ships around.”
Cancellations of entire services and the parking of ships would be needed to deliver a permanent boost, and shippers are loath to take such steps and risk market share, Damas said.
“Price increases by the shipping lines are imminent, but we doubt they will stick,” van Kesteren said. “Volatility of freight rates remains extremely high.”
Kuehne’s earnings before interest and taxes rose 8.3 percent to 195 million Swiss francs ($265 million) in the three months through September. That was 3 percent below the 201.9 million francs predicted by analysts.
Sea-freight volumes rose less than 1 percent, which van Kesteren said was the weakest in about four years, adding that Kuehne has surrendered some tonnage to focus on profitability.
The company reiterated that its marine volumes should rise 3 percent this year, outpacing market growth of 2 percent. Air freight will increase by 3 percent to 4 percent, compared with a global market that it forecasts won’t expand.
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