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Maersk CEO Says Balancing Supply of Ships to Demand Is Years Off

Shipping containers stand aboard the Maersk Mc-Kinney Moeller Triple-E Class container ship, operated by A.P. Moeller-Maersk A/S, as it sails across the North Sea between Rotterdam in the Netherlands and Bremerhaven, German. Photographer: Kristian Helgesen/Bloomberg
Shipping containers stand aboard the Maersk Mc-Kinney Moeller Triple-E Class container ship, operated by A.P. Moeller-Maersk A/S, as it sails across the North Sea between Rotterdam in the Netherlands and Bremerhaven, German. Photographer: Kristian Helgesen/Bloomberg

Nov. 14 (Bloomberg) -- A.P. Moeller-Maersk A/S, owner of the world’s largest container line, said the shipping industry must learn to live with excess capacity.

Given the current order book for container vessels, achieving equilibrium between supply and demand “is not an immediate thing,” Chief Executive Officer Nils Smedegaard Andersen said in an interview. Industry estimates point to a balance being reached in 2015 or 2016, with Copenhagen-based Maersk on the “slightly more pessimistic side,” he said.

Maersk Line -- which controls almost 16 percent of worldwide container capacity -- and its competitors are battling oversupply after a boom in ship purchases coincided with the financial crisis, triggering the worst slump in carriage fees since containerization became global in the 1970s. The company yesterday posted an 11 percent gain in third-quarter profit after cost cuts helped counter a decline in rates.

“The industry will live with overcapacity for a long, long time,” Andersen said. “We have, in terms of our own situation, come to accept that we have to make money, irrespective.”

As of Sept. 30 the global container fleet stood at almost 17.2 million standard containers, or TEUs, an increase of 6 percent versus a year earlier, according to Maersk. Some 56 vessels were added in the third quarter, 41 were scrapped and 91 new ships were ordered, while 2.6 percent of the total fleet stood idle, down from 3.4 percent a year earlier, it said.

Jumbo Vessels

Maersk took delivery of three of the world’s largest Triple-E container ships in the third quarter, with reduced fuel burn and a capacity of 18,000 standard containers, and will receive another two before the end of the year.

In order not to increase overall supply, Maersk offers only 14,000 to 15,000 TEUs of available capacity on the Asia to Europe routes where the craft are deployed, Andersen said.

“Our purpose is not to use the Triple-E vessels to take market share or start price wars or anything like that,” the CEO said. “For us, it’s a matter of reducing our costs. We will keep our market share and, depending on how the market grows, that will mean we will give back more or less tonnage to charter partners or scrap more or less of our own vessels.”

Maersk is assuming annual market expansion of 5 percent, and plans to enlarge its own fleet at the same pace, he said.

The world’s top carriers, including Maersk and CMA CGM SA of France, have been seeking to push up freight charges after fees between Asia and Europe fell to an 18-month low in June. The Danish company has announced four increases in five months.

Alliance

Even with a proposed multi-carrier pooling alliance of Maersk, CMA CGM and Mediterranean Shipping Co., a spate of mergers and mothballing of older ships, companies are finding it tough to return the industry to balance amid subdued demand.

The Shanghai Containerized Freight Index, which tracks freight rates for goods leaving the world’s busiest port and bound for destinations in Europe and North America, stood at $1,090.16 on Nov. 8. That compares with this year’s low of $881.74, reached on Oct. 18, and a Jan. 18 high of $1,245.84.

Maersk Line last raised carriage fees on Nov. 1 and is determined to force through the new price, Andersen said, adding that he is “happy with the outcome” so far.

“With the profitability we have in the industry, everybody realizes higher rates are fair,” the CEO said.“I believe customers understand they cannot have a supplier base that is constantly unprofitable. We will definitely work very hard to make sure rates stick, as we need the money.”

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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