Maersk Line will scrap one of its Asia-Europe services and suspend a second loop in the face of persistent overcapacity and falling freight rates.
The world’s largest container line will end the AE5 service and suspend sailings by the AE9 service until early December.
The action by the world’s largest container line will take 19 ships with a total transport capacity of 14,500 20-foot-equivalent container units out of the trade, which has been hit by falling demand because of the European recession.
The capacity cut may be sufficient to sustain the planned Nov. 1 rate increases, but may not be enough to sustain rates over the longer term, said Lars Jensen, CEO of Copenhagen based research analyst SeaIntel.
Maersk attributed the pullback to the bleak Asia-Europe trade outlook. “We do not expect volume growth on the Asia-Europe trades this year, so there is currently no need for the number of ships sailing,” said Vincent Clerc, chief trade and marketing officer. “We expect a 3 percent slump on the Asia-Europe container trades for 2012 and are taking steps to adjust to this without reducing our market position.”
The new cuts will bring the total capacity reduction in 2012 on Maersk Line’s Asia-Europe network to 21 percent. The carrier also cut capacity by 9 percent in February.
The AE5 service, which currently deploys eight 6,500-TEU vessels, will be closed with the last sailing departing Tanjung Pelepas, Malaysia, on Nov. 8.
The AE9’s 11 8,000-TEU vessels will be suspended immediately until early December.
Maersk’s capacity cut follows earlier reductions on the Asia-Europe trade by the CKYH Alliance of Cosco, “K” Line, Yang Ming and Hanjin Shipping and by the G6 Alliance between the Grand Alliance and the New World Alliance. Hanjin also will cut Asia-Europe capacity this winter.
“If you are looking at the magnitude of capacity that Maersk is pulling and put it together with what the G6 and CKYH have done, it’s a dual message,” Jensen said. “On one hand, we are reaching the point where we believe the Nov. 1 rate increase will go through. But if we don’t see more capacity withdrawals, I’m not convinced the rate erosion will stop because of this.”
Maersk Line and other carriers plan to boost their Asia-Europe rates by $500 to $550 per TEU on Nov. 1.
“But I don’t think they are pulling enough capacity out of the market yet to stabilize rates,” Jensen said.
In the face of the up-and-down nature of the global container trade, Maersk Line parent A.P. Moller-Maersk said this week it would cut investments in Maersk Line in order to focus capital spending on its more profitable oil and gas, drilling and terminals sectors.
Maersk Line said the capacity reduction won’t affect its flagship product, Daily Maersk, which will be kept intact. It said a recent survey it conducted showed 42 percent of Daily Maersk customers saved money on logistics as a result of the schedule reliability and transportation time the service provides.
Maersk Line also said it would consider additional opportunities to reduce capacity “where commercially appropriate” and look for slow-steaming opportunities.
Container rates from Asia fell below break-even last month as Europe’s sovereign debt crisis depressed demand for consumer goods, according to London-based ship broker ICAP.
The Shanghai Containerized Freight Index, a measure of spot rates for goods leaving China’s busiest port, fell 1.1 percent Friday to the lowest value since March 23.