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....
Sept. 26 (Bloomberg) — Maersk Line, the container unit of A.P. Moeller-Maersk A/S, said annual growth in the industry may be as low as 3 percent, forcing operators to focus on cost cuts amid vessel overcapacity.
Global demand will grow 3 percent to 6 percent a year until 2015, Maersk Line said at an investor meeting in Copenhagen today. That compares with average annual growth of 6 percent in the period 2002 to 2012.
Maersk Line, which transports about 15 percent of the world’s containers, raised its full-year profit forecast last month as accelerating cost cuts countered a decline in freight rates. The Copenhagen-based company is battling industry overcapacity after a boom in ship orders coincided with the global financial crisis, triggering the worst slump in freight demand since containerization became global in the 1970s.
“A deflationary mindset is needed,” amid overcapacity and low growth rates, Maersk Line Chief Executive Officer SÃ¸ren Skou said today in a presentation. Cost cutting will continue and be the company’s “lifestyle, not a diet.”
The company will defend its 15 percent market share and grow at the same pace as the industry. “Giving up market share would make us irrelevant in about 10 years,” Skou said.
Maersk reported last month a 12.7 percent decline in second-quarter costs at its container unit compared with a 7.1 percent drop in the first quarter. Net income at Maersk Line doubled in the second-quarter to 2.5 billion kroner ($450 million), even as revenue declined 10 percent.
Maersk rose as much as 1.7 percent in Copenhagen. The stock added 0.4 percent to 52,050 kroner at 11:25 a.m in the Danish capital.
Maersk Line has “substantial” levers for adjusting capacity to match demand, including the number of ships it charters, the company said today. Its vessel orderbook will allow the company to grow with the market “toward” 2015, without making investments in new ships, the company said.
“It’s a tough industry,” Skou said. “We need to invest less in Maersk Line in coming years.”
Nils Smedegaard Andersen, CEO of the parent company A.P. Moeller-Maersk, said he will continue to channel investments to units that give the highest yields so the company can meet a target of more than 10 percent return on invested capital.
As well as Maersk Line, the company owns a drilling unit, an oil explorer and a port division.
– Christian Wienberg, Copyright 2013 Bloomberg.
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