The Asia-Europe liner trades will dominate container shipping’s strategic planning through 2013 as ocean carriers confront a nightmare mix of declining traffic, persistent overcapacity, high oil prices and the imminent arrival of the world’s largest vessels.
Many carriers returned to the black in 2012 from the bloodletting of 2011 largely because of a string of successful general rate increases, supported by deep capacity cuts, on the industry’s make-or-break trade in the first half of the year.
The industry needs more of the same in 2013 to reverse the steep slide in rates through the second half of last year that was accelerated by the absence of a peak shipping season as cash-strapped European consumers slashed spending on Christmas imports from Asia, particularly China.
Much depends on the outcome of the fast-moving eurozone crisis, which already has created a two-tier market out of Asia, with shipments to northern Europe holding up much better than traffic to the Mediterranean as Spain and Italy get sucked deeper into recession.
The leading carriers have made a good start to the year 2013, canceling services to match the expected slump in traffic between Christmas and the end of the Chinese lunar vacation. The six-carrier Grand Alliance, for example, scrapped seven sailings between Jan. 9 and Feb. 15, while Maersk Line is slowing the sailing speed on its AE1 service out of Europe.
These measures, aimed at supporting ambitious rate hikes of $500 to $600 per 20-foot-equivalent unit, build on carriers’ deep capacity cuts in 2012. Still, the initiatives didn’t stop Asia-Europe spot rates from crashing almost 30 percent in the three weeks following general rate increases introduced on Nov. 1 and likely will fail to stem the decline in the seasonally slack first quarter of the year.
The bottom line is carriers must cut even more capacity to mop up the current estimated 15 percent Asia-Europe surplus that could swell if Asian exports to the eurozone continue their double-digit decline.
The top three carriers — Maersk, Mediterranean Shipping Co. and CMA CGM — have taken the lead in aligning supply and demand with little reward. Their share of Asia-Europe capacity fell from a peak of 53 percent in April to 46 percent in October, but this didn’t stem the slide in freight rates, according to industry analyst Alphaliner.
The big question is whether they are prepared to keep reducing capacity to shore up rates until an expected pickup in traffic in the second quarter, particularly if some of the other 18 lines on the route profit from their self-discipline by boosting their market shares.
So far, the largest carriers are doing all they can to prevent a return to a 2011-style rate collapse. CMA CGM is transferring three 11,000-TEU ships to the Pacific after deploying the first of three 16,000-TEU vessels, the world’s biggest ships, in the Asia-Europe trade. MSC also has switched some of its biggest vessels from the Asia-Europe trade to the Asia-North America route and has laid up a 13,000-TEU ship.
But the key factor is how Maersk chooses to play it. The Danish carrier’s bottom line is critically dependent on the Asia-Europe trade, which accounted for 24 percent of its container volume in the first nine months of 2012 even after westbound shipments tumbled 15 percent in the third quarter.
Maersk is about to raise the stakes as it deploys the first four of 20 18,000-TEU Triple-E class ships it ordered in a $4 billion bid to cement its supremacy in the Asia-Europe trade.
The giant ships will slash Maersk’s operating cost base, paving the way for long-term profitability on the route. They will consume about 35 percent less fuel per container transported than its rivals’ 13,000- to 14,000-TEU vessels, Maersk says. They will slash operating costs per TEU by 26 percent compared with the carrier’s own 15,500-TEU Emma Maersk-class ships, the backbone of its Asia-Europe service.
The market outlook has deteriorated sharply, however, since Maersk ordered the second batch of 10 Triple-Es in June 2011, just four months after signing the initial contract for the first 10. At the time, Maersk forecast demand on the Asia-Europe trade would expand 5 to 8 percent annually through 2015 and the new ships would enable it to meet rising cargo demand and maintain its market share. Now it faces a struggle just to fill the vessels, much less turn a profit on each container carried.
But the word from the carrier’s Copenhagen headquarters remains surprisingly bullish. “We think the world economy is moving in the right direction, very slowly,” said Nils Andersen, CEO of parent company A.P. Moller-Maersk. “In the second half of 2013, we will see container volume starting to grow in the Europe trade again.”
Contact Bruce Barnard at firstname.lastname@example.org.