Maersk gambles on cargo volumes

From suffering US$ 2.09 bn losses for 2009 in its container shipping and back to US$ 4.9 bn profits in 2010 primed initially by slow-steaming, Maersk is now making a record-breaking order for 18,000-teu ships that is raising again the specter of overcapacity on major liner trades. Their sheer size means they can only be fully utilized on the Far East-to-Europe trades. Dependence on a single route has led some to remember the ill-fated ultra large crude carriers (ULCCs) of the 1970s.

Maersk recently signed ten firm orders with Daewoo Shipbuilding & Marine Engineering for delivery in 2013 and 2014 at a cost of US$ 190 mio apiece. Options for another 20 vessels means the deal could end up being worth US$ 5.7 bn.

Maersk is clearly taking a forward position on the freight market after 2013 where The company appears to expect that container volumes will pick up by the time the first of the leviathans is delivered in two years’ time.

2010 marked a significant recovery in the container sector. Freight rates per teu in 2010 rose by about 30 percent from the previous year calculated on a yearly average basis. Freight rates fell in the last quarter, however, after gaining steadily during the first three quarters. The main factors behind the weaker market were a seasonal drop in cargo volumes, higher deliveries and reactivation of idle tonnage.

Freight rates from Asia to Europe experienced the most pronounced upturn in the early part of the year, but also saw the sharpest drop towards the end of the year. On an annual basis, box rates on this trade route rose by 80% compared with 2009. Other trade routes typically saw rates increase by 20% to 30%. Charter rates followed a similar trend with a steady increase over the first three quarters, although they declined only moderately in the final quarter. On a yearly average basis, charter rates rose between 40 - 80% with the strongest gains for ships above 3000 teu.

China’s imports of container cargo grew at a brisker pace than exports. A large portion of the containers imported to China consisted of parts to assembly plants, which to a significant extent were also reexported to other countries. Intra-Asian container traffic increased significantly by around 20%. outpacing the headhaul Chinese export routes to Europe and the US (approx 15-6% increase). Also a notable trend in the global container shipping market in 2010 was a sharp increase in volumes from East Asia to the Middle East, Africa and South America.

Maersk may be looking around for new markets, with chief executive Eiving Kolding alluding to “interesting markets” in the Europe region, namely Russia, Turkey and North Africa, but the development of these kinds of routes does not call for such leviathan vessels.

In 2010, container traffic rose by 2.7 times world GDP growth. Historically, global container traffic has increased by between 2.2 and 2.7 times the world GDP growth. This phenomena, which was the need to rebuild inventories after the economic recession in 2009, is not sustainable.

Based on prevailing forecasts for world GDP in 2011, Platou Markets are forecasting that the global container trade could climb by around 10%. They are expecting biggest gains in container volumes in Intra-Asian trade and on routes from Asia to the Middle East, South America and Africa. Conversely, they expect container imports to Europe and United States to show a more moderate increase this year.

The net fleet expansion is forecast to around 9% on a yearly average basis. Platou Markest are expecting the global container trade in 2011 to rise another 9-10%, representing a balanced picture with likelihood of slacker rates the first half of the year and then a pickup in activity in the 2nd semester.

The container orderbook remains large. Scheduled deliveries in 2011 amounts to a capacity of 1.4 million teu (1.3 mio teu in 2010). Major players like Seaspan have aggressively held on to their pre-2008 fleet expansion orderbook; Maersk is now setting a new trend in increasing the containership orderbook.