High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
(Bloomberg) — A.P. Moeller-Maersk A/S, owner of the world’s largest container shipping line, is betting that China will evolve into a consumer economy from a nation driven by export growth within a decade.
“We’re investing in our China set-up as we’re building up a large organization there so we can be ready to help customers who want to export to China,” Chief Executive Officer Nils Smedegaard Andersen, 54, said in a Nov. 9 phone interview from Maersk’s Copenhagen headquarters.
The world’s second-largest economy is targeting more sustainable growth as it prepares for a shift in leadership, with Vice President Xi Jinping set to replace President Hu Jintao as head of China’s Communist Party. Prime Minister Wen Jiabao has already cut China’s economic growth target as the government encourages consumer demand and weans the nation off its reliance on exports.
“It will be very, very positive for us — and probably also for the rest of the world — if China succeeds in this development,” said Andersen. “We can already register the trend as we’re seeing rising Chinese imports. So it’s already happening.”
For now, Maersk’s container line, which ships about 15 percent of the world’s sea-born consumer trade, is still sending empty containers to China as exports continue to outpace imports.
The value of China’s exports rose 11.6 percent from a year earlier to $176 billion, while the value of imports gained just 2.4 percent to $144 billion, according to trade statistics released Nov. 10 by the Beijing-based Customs General Administration.
Still, China’s foreign trade expanded at a slower pace than last year in the first 10 months of the year, according to the Nov. 10 report, putting at risk the government’s 2012 target of 10 percent growth. Exports through October rose 7.8 percent while imports gained 4.6 percent, leaving a trade surplus of $180.2 billion.
“In about 10 years I think we may reach a level where there’s more of a balance between container goods going into China and leaving China,” Andersen said.
While the increase in China’s gross domestic product slowed to 7.4 percent in the July-September period from a year earlier, the weakest in three years, gauges of manufacturing and retail sales have pointed to a recovery. China’s economic expansion will probably accelerate to 7.7 percent this quarter and to 7.9 percent in the three months through March 2013, based on the median estimate of analysts surveyed by Bloomberg Oct. 18-22.
“China will probably be able to uphold a good growth level” next year, Andersen said. “Most people expect 8 percent growth or slightly less. The country could grow more than 8 percent in the short term.”
Maersk rose as much as 1.3 percent in Copenhagen trading. The shares advanced 1.1 percent to 40,880 kroner at 9:09 a.m. local time, giving the company, Denmark’s biggest by revenues, a market value of 175 billion kroner ($29.8 billion).
Maersk’s container unit, Maersk Line, reported a third- quarter net profit of 2.87 billion kroner on Nov. 9, compared with a year-earlier loss of 1.53 billion kroner. The division, which transported the equivalent of 2.1 million 40-foot containers in the three-month period, was helped by freight rates that were 5.7 percent higher than a year earlier.
Maersk Line lowered its 2012 estimate for global container demand to 3 percent from 4 percent in August as European consumption slumps. The unit kept a forecast for “modest” profit for the year.
The parent company, which also owns a port terminal operator and an oil unit, employs 108,000 people world-wide, 12,500 of which are based in China and Hong Kong.
So long as China’s exports outpace imports, the country’s growth rate will have a limited impact on Maersk’s container earnings, Andersen said.
“If China’s economy is booming ahead while European consumers don’t want to consume, it wouldn’t result in any more sea transportation,” he said.
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