Downbeat Maersk Line chief warns of new era in shipping; Container shipping industry faces lower annual growth

July 17, 2013 11:02 am

Downbeat Maersk Line chief warns of new era in shipping

By Mark Odell, Transport Correspondent

The struggling container shipping industry must prepare for a new era that will see growth in demand fall to half the levels seen over the past two decades, the head of the world’s largest carrier has warned. Søren Skou, chief executive of Maersk Line, a bellwether for global trade, told the Financial Times that the more downbeat outlook was not just due to an prediction of sustained weaker economic growth globally.Instead, two trends that have shaped global trade patterns and drove strong container demand since the 1990s are running their course.

US and European “offshoring” of production to Asia was all but over and in some cases was being reversed, he said. At the same time, containerisation – the increasing use of boxes to transport goods, such as bananas, that had previously moved by other means – was also at an end.

“Most of the stuff that can go in containers is going in containers today,” he said.

Mr Skou said he was preparing to adapt to annual growth of 4 to 5 per cent in the years ahead, compared with levels close to 10 per cent during the boom years before the economic crisis hit in 2008.

“I think the reality is that our industry has to get used to lower growth than we had in the past,” he said.

The container shipping industry has already been plagued by overcapacity and highly volatile freight rates in recent years.

Since taking over as chief executive of the world’s largest container shipping line by capacity in January 2012, Mr Skou has shifted the focus from chasing greater market share to cutting costs to protect profitability in the volatile market.

I think the reality is that our industry has to get used to lower growth than we had in the past

– Søren Skou, chief executive, Maersk Line

A big part of this strategy is Maersk’s new Triple-E class vessels, the largest container ships ever built, the first of which entered service this week. These promise to cut units costs by up to 30 per cent, assuming the ships can be filled.

Maersk has 20 of the vessels on order, but Mr Skou said the arrival of the new behemoths would not add capacity on the Asia-Europe route, as Maersk would swap out older vessels.

The extent of the volatility facing the sector was clear in the second quarter, from April to June, when rates on Asia-Europe, the world’s busiest trade route, plunged from around break-even levels at $1,200 per 20ft equivalent units (TEUs), the industry standard measure for a container, to $400.

Mr Skou said the fall “is one of the fastest declines we’ve ever seen” and was triggered by weaker-than-expected demand. The industry had expected growth of 4 to 5 per cent in the second quarter, but instead demand fell by up to 2 per cent, he said.