If Maersk Line’s latest bid to muscle aside competition for shipper business is to succeed, the carrier will have to do it on the world’s toughest trade route.
Maersk Line CEO Eivind Kolding concedes the Daily Maersk will face a “tough” debut in an Asia-Europe market marked by “very low” freight rates and a glut of capacity. But the world’s largest carrier is putting its huge capacity behind the idea that strong service standards, backed by guaranteed delivery times, will add up to supremacy on the world’s largest ocean container route.
“We have very strong confidence we can deliver ... high frequency with high reliability,” Kolding said, a belief supported by the sheer size of the fleet involved. The new service is being launched after months of talks with big-ticket shippers such as Sony that have publicly embraced the Daily Maersk. Kolding said the service is built as much on the financial impact it can have on shippers as what it does for Maersk’s operating economics.
Kolding portrays the Daily Maersk as “an extended production line” and a “virtual conveyor belt” allowing Asian manufacturers to shorten supply chains, shrink inventories and reduce working capital.
One Maersk customer calculates it would increase annual revenue by $200 million if delivery reliability increased from 70 percent to 85 percent, the carrier said. A large retailer estimates containers in its security stock cost an average of $15 a day in capital costs. Another global retailer tells the carrier that 70 percent of its cargo loses 25 percent of its retail value when it is a week late. With an average cargo value of $42,000, that’s a hit of $10,500, Maersk said.
That’s why Adam Rashid, Sony’s European logistics manager, said the new service has the potential to “change the shipping industry.”
It certainly will have a major impact on the Asia-Europe trade lane. To create an oceanborne conveyer belt, the Daily Maersk will deploy 70 of the Danish carrier’s biggest ships, accounting for a quarter of Maersk’s global container capacity, on a seven-days-a-week service between four key Asian ports — Ningbo, Shanghai and Yantian, China, and Tanjung Pelepas, Malaysia — and three in northern Europe — Felixstowe, Rotterdam and Bremerhaven.
The first daily cutoff will be Oct. 24, with transit time to the three European ports of 36 days from Ningbo, 34 from Shanghai, 30 from Yantian and 26 from Tanjung Pelepas.
Maersk will charge a premium for the daily cutoff. But for what appears to be the first time in the industry, shippers will be compensated if their boxes don’t arrive in time — $100 per container for a delay of one to three days, $300 for four days and more, with a few exceptions such as extreme weather or port strikes.
Right now, Maersk said, around 10 percent of all its shipments are more than two days late.
If the approach works, Maersk says it will consider bringing it to other ports and trade lanes. “We hope that we can copy the way we have worked with customers to develop Daily Maersk to other trades and offer products and value that make sense for those trades and markets,” Thomas Knudsen, CEO of the company’s Asia-Pacific region, said in an interview.
“Our customers have told us that they much rather prefer that we start with something we can confidently deliver with the absolute reliability they need to improve their supply chains,” he said. “Once this is proven, we will look into building on top of it and adding corridors to further improve our customers’ business.
Maersk is trying to make it work on the world’s largest trade lane, and the toughest on carrier finances.
The Container Trade Statistics index of Asia export volume to Europe has fallen nearly 50 percent in the past year, and the Shanghai Shipping Exchange’s Asia-Europe SCFI is down some 40 percent since the start of 2011, providing a rate of $833 that is about half the rate to the U.S. West Coast.
That’s what is spooking rival carriers that are still reeling from Maersk’s decision this year to spend close to $4 billion on 20 18,000-TEU Triple-E container ships that will hit the Asia-Europe trade starting in 2013.
The Daily Maersk clearly is designed to fill the cargo space of these behemoths and boost Maersk’s 20 percent share of the westbound trade out of Asia by the time they enter the market.
Maersk is confident it has outflanked rival carriers. It needs at least 70 large ships to operate a daily Asia-Europe service and that requires industry consolidation that will be a “long time” coming, Kolding said.
Rival carriers are still weighing whether to match Maersk’s mega-ships. So far, only France’s CMA CGM has taken up the challenge, bulking up three 13,800-TEU ships on order to 16,000 TEUs and keeping an option to go up to 18,000 TEUs.
Seaspan, the charter ship owner, and classification society Germanischer Lloyd say they are talking with carriers about 18,000-TEU ships, but Maersk is pulling ahead every day as its competitors weigh the risks of multibillion-dollar investments.
The competition will become even hotter in a couple of years, with Maersk claiming its Triple-E ships will consume approximately 35 percent less fuel per container than the 13,000- to 14,000-TEU vessels its rivals have ordered. The new vessels will slash operating costs per TEU by 26 percent compared to the 15,500-TEU Emma Maersk-class ships, currently the world’s biggest.
Lower operating costs coupled with premium rates add up to fatter margins and the financial muscle for the world’s biggest carrier to boost market share. Without another round of consolidation, Mediterranean Shipping and CMA CGM are the only carriers able to take on Maersk, but doing so would involve a massive step up in investment for these privately held companies.
Right now, a Daily Maersk-style service will work only on the giant westbound Asia–North Europe route, according to Kolding. But it’s viable on other routes if carriers can achieve sufficient scale.
A successful Daily Maersk, coupled with readily available owned or chartered capacity, will open the way, in time, for similar services on other major trade lanes, with the Asia-North America market the most likely market.
-- Contact Bruce Barnard at email@example.com.