Last year was a financial bust for container ship lines, which lost more than $6 billion amid a frenzy of rate-cutting. Some $602 million of those losses were at Maersk Line, but new CEO Soren Skou is steering the world’s largest container line on a concerted course to bring it “back to black.”
Skou, who became CEO in January, said Maersk has achieved satisfactory market share and is concentrating more on profitability. “What we can do as one carrier is only to decide our own pricing, and I’ll certainly look to our team to make sensible and disciplined pricing decisions,” Skou told The Journal of Commerce. “I think we have said very clearly that we want to protect our market share but not to grow it.”
Maersk boosted its global market share above 15 percent last year, but some competitors blamed it for introducing rate cuts that plunged the industry into the red after carriers recouped most of the estimated $15 billion to $20 billion they lost in 2009.
As the largest container line, Maersk accepts some — but not all — blame for the rate wars, Skou said. “But it’s history now,” he said, and the question is how to restore rates to profitable levels. “The industry came out of 2011 in a quite non-healthy condition and, obviously, it’s just not sustainable.”
Although Maersk Line expects another loss this year, Skou said current supply-demand trends leave him “slightly more optimistic” about rates. “I think most people have been surprised by the volumes, particularly the export volumes from Europe and the U.S.,” he said. “A significant amount of ship tonnage has been laid up. That is helping, and we are seeing slightly better demand than expected.”
Skou reiterated Maersk won’t seek further increases in its market share, but will defend its current share “at all costs.” He said Maersk won’t initiate a new round of rate cuts, but will respond if challenged.
“In our minds, there’s a clear difference between growing your market share and just saying you want to stay where you are. It creates a different behavior when you have to grow your markets,” Skou said. Keeping market share at current levels “means we can be much less aggressive in pricing.”
Skou’s message was similar to the one Lucas Vos, Maersk’s chief commercial officer, delivered in a keynote speech to Containerisation International’s Global Liner Shipping Conference in London this month.
Maersk “was not well-run for a long time and was not providing value to our shareholders,” Vos told conference attendees. “It feels like we lost our way since the 1990s by trying to price our competitors out of the business and not listening to our customers.”
Skou said Maersk is determined to improve its service so customers recognize its value and are willing to pay for it. He said carriers need to get over their obsession with market share, and that seeking business through low rates is self-defeating. “We don’t create any more demand for container loads by lowering prices,” he said. “Our customers ship cargo when they have sold some goods, not because freight is cheap.”
Skou said Maersk is “extremely pleased” with the Daily Maersk service it launched last October. The service combined 68 vessels into a single service with fixed cargo cut-offs at the Asian ports of Ningbo, Shanghai, Yantian and Tanjung Pelepas, and fixed arrivals at the European ports of Felixstowe, Bremerhaven and Rotterdam.
“We are able to deliver on our reliability promise,” he said. “We have 98 percent on-time delivery so far. We are clearly seeing that customers are happy with the product. It’s simple and easy to understand. It enables the customer to take out inventory from his supply chain.”
Maersk plans to assess the new service in a few months with an eye toward expansion. Skou said the logical move would be to add additional ports to the Asia-Europe service, but that there are no immediate plans to expand it to the trans-Pacific or other trades. “It is a difficult concept to implement,” he said. “It does take a substantial scale. If you have a couple of strings a week covering a certain corridor, then making it daily is a big jump.”
The launch of Daily Maersk promoted other Asia-Europe carriers to combine services. Carriers have put through a series of rate increases on the Asia-Europe and trans-Pacific routes. Bunker costs continue to challenge carriers. Skou said each 40-foot container carried on the trans-Pacific requires 1.2 to 1.4 tons of bunker fuel. With bunker costing more than $700 a ton, that means bunker costs per container are approaching $1,000.