Tuesday, June 23, 2009

Maersk says container mart may shrink 10pc this year

A.P. Moeller-Maersk A/S, owner of the world's largest container shipper, said cargo volumes may drop more than 10 per cent this year and show no growth in 2010 as the industry suffers a "completely unprecedented" decline.

"We will have a substantial loss this year and next year will be equally difficult," Eivind Kolding, chief executive officer of the Copenhagen-based company's Maersk Line container unit, said yesterday in an interview. "We have been quite disappointed by the market development in April and May."

Container numbers will fall 10.3 per cent in 2009, Drewry Shipping Consultants Ltd said last week after predicting a 5.3 per cent contraction three months earlier.

Drewry's forecast is "a fair estimate" and the industry may "actually see a bigger decline" after volumes tumbled 15 per cent in the first five months, Kolding said.

A "worrying" balance between supply and demand won't reach a "fair" level until 2015, he added.

The container industry, which transports manufactured goods by sea, is in its first year of contraction as consumers in Western economies rein in spending. The market has expanded by more than 10 per cent most years since the global industry started in the 1970s. The worst year until now was 1982, when the market grew 4.6 per cent, according to Drewry.

Freight prices have also dropped as shipping lines compete for a declining number of contracts and new vessels ordered during the boom period enter the market. Rates are down to 1990 levels, Kolding said, pushing operating margins to "record lows."

"Getting lower down from this point will actually mean you have to pay the customer to take his business," the executive said. "There is a floor and we are quite close to that now."

London-based Drewry predicts that global container-market capacity will grow 8 per cent this year and 10 per cent in 2010. The industry will lose a combined US$20 billion (US$1 = RM3.55) before interest and tax, compared with a US$5 billion profit in 2008, it says.

Maersk Line, which operates 470 vessels and owns 1.9 million containers, lost US$559 million in the first quarter of this year as its rates dropped 24 per cent from a year earlier and volumes fell 14 per cent.

It will seek to cope with the decline by cutting costs and improving customer relations to hold on to its 15 per cent global market share, said Kolding, 49. It won't try to take orders from competitors, he said.

Parent A.P. Moeller-Maersk, Denmark's largest company by sales, also owns the Nordic region's second-largest oil and gas explorer, a 20 per cent stake in Denmark's largest bank, Danske Bank A/S, and a tanker unit. The group said May 12 it may have a net loss this year, the first since World War II, because of the container unit.

The container industry will consolidate over coming years once trade picks up, Kolding said, adding that he has no regrets over Maersk's two biggest acquisitions, the 1999 purchase of Sea-Land Service Inc . and the 2005 takeover of Royal P&O Nedlloyd NV.

Maersk Line, which transports about 20 per cent of China's container goods, has reduced its labour force to 17,500 people from 23,000 at the beginning of 2008 and will cut more jobs, Kolding said, declining to give a specific number.

Source: Business Times

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