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Maersk And Rivals Seen Failing In Bid To Hike Shipping Rates

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March 12, 2013

Image credit: Maersk Line 

reuters logoCOPENHAGEN, March 12 (Reuters) – The world’s biggest container shipping company Maersk Line and its rivals are expected to fail in an attempt on Friday to raise rates on the key Asia to Europe route, as they seek to boost profits following years of a sector slump and over capacity.

Maersk Line, a unit of Danish oil and shipping group A.P. Moller-Maersk, and its nine biggest rivals, have said they will hike Asia to Europe rates on Friday by 60-70 percent compared with last week’s price level, a rate increase of between $600 and $750 per twenty-foot equivalent unit (TEU).

Last week, spot rates on the Asia to Europe route dropped by 9.5 percent to $999 per TEU, and combined with over capacity in the market, the attempted increase is expected by market players to be unsuccessful.

“When you look at the forward curve, it looks like a rate increase of $250 per TEU could be implemented,” said container derivatives broker Cherry Wang from ACM/GFI Group in London.

“A rate increase of about $250 per TEU would bring rates back up at the level seen a few weeks ago. I do not think the increase will last long,” Wang said.

Maersk Line, a bellwether for global trade as its vessels make up 14 percent of world container shipping capacity, is planning to raise its spot Asia to Europe rates by $600 per TEU on Friday.

For the Maersk group’s bottom line, the rate hikes make a difference. A $100 change per 40 foot container unit will increase or lessen its profit by just under $1 billion.

The group said last month its net profit rose 20 percent to $4.04 billion in 2012, after it successfully raised freight prices.

Freight forwarder Blue Water Shipping, a customer of Maersk Line which books containers for clients, also said the planned rate hikes were likely to fail.

“My guess is that they will not get them through. The market is too weak,” said division head Kenneth Sindahl.


Maersk Line has struggled in the past few years as the container shipping industry has been hit hard by over capacity and a global economic slowdown.

Analysts are mostly optimistic of a modest pick up in world trade this year, as growth in Asia and recovery in the United States make up for sluggish European markets.

But new and bigger vessels delivered from Asian shipbuilders are expected to enter the market in the months to come, adding fuel to a market already fighting over capacity.

Maersk Line reported a profit of $461 million for 2012, recovering from the previous year’s loss, and the company said it would likely show stronger results in 2013.

The group has forecast demand for shipping containers is likely to increase by around 4 to 5 percent this year.

“The stability of the price is not sustainable because of over capacity,” Sydbank analyst Jacob Pedersen said.

In an efficiency drive, the container shipping industry has seen a drive towards building ever bigger vessels.

In some months time, South Korean group Hanjin Shipping Co <117939,KS> will replace 8,000 TEU vessels with new vessels with a capacity of about 13,000 TEU, while Maersk Line will introduce the first of 20 vessels with a capacity of 18,000 TEU this summer.

Rivals also planning Asia to Europe rate hikes include Mediterranean Shipping Company, CMA CGM, China’s Cosco Shipping Company, Taiwan’s Evergreen Marine Corp, Germany’s Hapag-Lloyd, Hanjin Shipping Co, APL, China Shipping Container Lines and Japan’s Mitsui OSK Lines.

($1 = 5.7445 Danish crowns) (Reporting by Ole Mikkelsen; writing by Mette Fraende; editing by James Jukwey)

(c) 2013 Thomson Reuters, Click For Restrictions

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