Freight rate price war not an option: Maersk CEO
U.S. and European debt crises are paralyzing consumer demand for goods exported from China and putting downward pressure on some shipping rates, said Nils Andersen, chief executive of Danish shipping and oil group A.P. Moller-Maersk, Reuters reports.
The shipping industry has a history of cutting rates to gain market share during hard times. But Maersk is not taking that route today, partly because its rates are not covering costs on the Asia-to-Europe traffic, Andersen said in an interview late Thursday at Maersk Line's U.S. headquarters.
Andersen said industry rates are stable in most regions but slipping slightly from Asia to Europe. Maersk expects to hike rates, and aims to maintain rather than increase market share.
"It may be a little new to industrial thinking, but we just can't afford to go into a price war because the general market is going down," he said.
Maersk Line, the Copenhagen-based conglomerate's shipping company, is a barometer of world trade as its fleet carries more than 15 percent of all seaborne containers.
"We see the U.S. actually being in recovery ahead of Europe, though that doesn't mean it will return to the glory days," he said. "People are worried and there's good reason for that, because the economies are over-leveraged."
The short-term economic outlook is clouded by uncertainty in both the United States and Europe, the main importers of goods made in China, Andersen said.
"If you look at the foreign debt situation of the U.S. it's enough to make anybody scared and the deficit of the government is just mind-blowing," said Andersen. "I don't think we'll be in this crisis forever, but at least for Europe, it will take a couple of years to get out of it."
Growth in developing markets will be slowed by the problems of mature markets, he said. But he said he was optimistic that, longer-term, a growing middle class in emerging nations would stoke consumer demand and exports from the U.S. and Europe.
Industry shipping volume from Asia to Europe fell by about 8 percent in June and by 14 percent in July, Andersen said.
"China is still by far the most important country for manufacturing but a lot of the cheaper textiles have moved out of China or never got there," and are produced in places including India or Bangladesh.
But while weak global economic demand and a glut of vessels have hurt the global shipping industry, Anderson said Maersk's freight rates were likely to rise.
"I suspect that when people realize that they're not losing market share, but that it's just a bad market, they will change behavior" and not rush to cut rates to attempt to draw more volume as tried in the past, said Andersen. "That's anybody's guess and it may also be wishful thinking."
He declined to quantify the planned Maersk rate hikes.
The company in August raised its 2012 earnings outlook on prospects of rising container freight rates to customers, which lagged a rebound in the spot market.
Maersk Line's average freight rates rose 4.2 percent in the second quarter from a year earlier and 14 percent from the first quarter, but remain below 2010 levels.
Andersen said it was too soon for a clear read on holiday season demand from Europe, but noted there have been warnings from luxury good makers, for example, of slowing demand.
Some U.S. customers have been moving freight earlier than usual in case of an East Coast ports strike that would divert many goods deliveries to West Coast ports or left to languish on the ocks, transportation executives have said.
Maersk has identified four core businesses where it intends to invest and grow: container shipping, oil rigs, oil & gas production and port facilities.
Maersk Drilling has seven big drilling units on order and aims to become a leading drilling contractor in deep water and ultra-harsh environments, the company has said.
Its APM Terminals unit this week said it entered the Russian market by buying half of Transportation Investment Holdings' 75 percent stake in Global Ports Investment. It is also investing in growth markets including Mexico, Peru and Costa Rica.
Andersen said the company would not be investing in additional ships over the next two to three years because of the current industry over-supply. But Maersk Line ordered 20 giant "Triple-E" containerships in 2011 and will take delivery of them as planned, beginning in the first half of 2013, he said.
"It's not that we're trying to grow our market share, it's just that we need to grow with the market," he said.
