Bruce Barnard, Special Correspondent | May 18, 2012 10:22AM EDT
Maersk Line plans to hike ocean freight rates on South American routes by up to 30 percent this year to stem losses, cover soaring fuel prices and pay for the 16 container ships it ordered for the trade.
Without higher freight rates, it will be difficult to recoup the $2.2 billion investment in the 7,500 20-foot equivalent unit vessels, said Robbert Jan van Trooijen, Maersk’s chief executive for Latin America and the Caribbean.
“Depending on the cargo, we are planning to raise rates by up to 30 percent, but the actual rate increase will also depend on the level of the base rate we are coming from,” van Trooijen said.
“For routes that already have higher rates, we can do with less,” he told The Journal of Commerce.
“From Asia, we have already started the process early this year, but we need to continue until we have reached the right levels, especially in the trade between Asia and Brazil, where we’ve had less success so far than the trade from Asia to the west coast of South America.”
“Our profit margins right now, when we have them, are in the single digits. We need to raise these into the double digits to cover our cost of capital,” van Trooijen told Reuters. “We need to raise returns to recoup the investment on our ships.”
Bunker fuel prices have tripled in the past five years while freight rates have fallen 10 percent, he said.
Average freight rates on Maersk’s Latin American routes declined 8 percent year-over-year in the first quarter, the carrier revealed earlier in the week.
Maersk has taken delivery of 10 of the ships, the largest that can enter South American ports. The remaining six vessels are expected to be delivered from South Korean shipyards by the end of 2013.
Earlier this week, Maersk reduced a planned rate increase on the Far East-east coast South America trade to $500 per TEU from $600 per TEU. But implementation of the rate hike will be earlier, moving from July 1 to June 15.
The carrier will also charge $100 more to ship 20-foot, 40-foot and 45-foot containers from the U.S. Gulf and Mexico to the Brazilian ports of Santos and Sao Paulo, effective June 11.
Rates from Brazil to Central America and the Caribbean will increase $100 for a-20 foot container and $200 for 40-foot and 45-foot container, also from June 11.
Maersk’s Latin American container traffic surged 23 percent in the first quarter from the same period in 2011 and accounted for 11 percent of the carrier’s total volume of 4.4 million TEUs in the period.
Latin America is Maersk’s third-largest market, trailing Asia-Europe at 37 percent and Africa, 15 percent.
Contact Bruce Barnard at brucebarnard47@hotmail.com.