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Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global SupplyChain Logistics

From SCDigest's On-Target e-Magazine

Feb. 29, 2012


Global Logistics News: Following Events at Maersk can Say a Lot about the State of the Container Shipping Industry

Post Big Loss for Year, Cancels Option for Next 10 Triple E Megaships; Loss on Each Container, but Making it Up on Volume?


SCDigest Editorial Staff


There has been a steady stream of news of late from ocean container shipping giant Maersk Line, which in total says a whole lot about where the industry stands right now - a position that isn't a very good one, for carriers at least.

SCDigest Says:


Maersk also said it will increase its level of "super slow steaming" to reduce operating costs of its vessels by reducing fuel usage.

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Maersk Line, a division of A.P. Moller-Maersk, said this week that is lost $602 million in 2011, after record profits of $2.6 billion on 2010.

That even though the company said it saw cargo volume gains of 11%, handily above estimates for overall tonnage growth globally of 7%. Maersk also saw its revenues grow 5% to just over $25 billion.

But those market share and revenue gains came at a great price, as the company bid below costs for market share and continued plans for growing overall capacity. Amid a punishing industry capacity glut, rates slipped on average 8%, including bunker fuel surcharge, to $2,828 per 40-foot container from $3,064 in 2010. That as those bunker fuel costs rose about 35% during the year.

The result: the big loss. The losses occurred in the second half of the year, with a Q4 loss of $633 million, following a loss of $297 million in Q3. The first half of year had been modestly profitable.

In the end, Maerk said lost $75 on each 40-foot container shipped in 2011 compared with a $384 profit per container in 2010. Reminds of the old joke about "we lose money on every unit but we'll make it up on volume."

The company said conditions were worst in Asia to Europe routes, where rates decline 19%; in Asia to North America routes, volumes were up just 2% while rates fell 7%.

Maersk says it expects the losses to continue in 2012.

Cancels Next Round of Triple E's

The previous week, Maersk had announced it was cancelling its option to buy another 10 of the giant Triple E container ships that it could have ordered from Korean shipbuilder Daewoo, a move not unexpected given the continued glut of ocean shipping capacity referenced above.

(Global Supply Chain Article Continued Below)




The Triple E's, first announced by Maersk last March, can each hold 18,000 TEU, a major jump from the 15,000 TEU megaships that set records for capacity over the last couple of years. That means 180,000 of potential TEU capacity will not be coming to market, but Maersk does have 20 of these giants already on firm order, with the first ships coming into service in 2013.

That even as Maersk has just announced it was idling about 9% of its capacity on troubled Asia to Europe routes, where the debt crisis there has dramatically slowed import volumes.

Maersk also said it will increase its level of "super slow steaming" to reduce operating costs of its vessels by reducing fuel usage.

Despite the canceled order for more Triple E's, the high levels of industry capacity, and falling rates, Maersk CEO Soren Skou recently said that the carrier “will defend our market share position at any cost.”

Sounds to us like that means the good times will keep sailing for ocean shippers and importers - if you are willing to wait a few extra weeks to get your goods.

Is the ocean container shipper industry kind of crazy or what? Is all this good for shippers in the end - or would you rather see the carriers get back to some profitability, even if that does mean somewhat higher rates?

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