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Despite growth in shipping, Maersk faces choppy waters

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The world's largest container shipping company says the tide has turned. Maersk AS is expecting solid growth next year in the volume of boxes its ships around the world. There are other promising signals as well, including a surge in port traffic in China and a pick-up in rates for bulk carriers, the ships that carry raw materials around the world. The trade runes look positive, but it's not enough reason for shipowners to celebrate. They still navigate in one of the most dysfunctional markets on the planet.

Maersk Line carries more containers to more places than anyone else, and with 15 per cent of the global market, it is heavily exposed to the massive overcapacity in container shipping. Between 2007 and 2012, the container shipping industry expanded its fleet at an average rate of 9 per cent per annum while demand rose at just 2 per cent per annum. Trade volumes collapsed after the financial crash, but Maersk admits that its expectations of a swift recovery were too optimistic when it placed orders for 20 Triple-E class container ships, the biggest vessels on the water. Efforts to push up rates on Asia-Europe routes this year failed; instead they retreated by 16 per cent.

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Overcapacity has left the entire shipping industry nursing huge losses. but Maersk has managed to scrape back into profit through aggressive cost management, using techniques such as slow sailing to reduce the the fuel burden, a big operating cost. Maersk now forecasts that demand for containers will increase by between 4 and 6 per cent in 2014 and 2015.

Meanwhile, the Baltic Dry Index, a gauge of the rates charged by shipowners to carry bulk cargoes such as iron ore or coal, has recently surged, reflecting rising steel output in China. Activity in Chinese ports would also seem to back up the more optimistic tone struck by Maersk. Figures from Drewry Maritime Research, reproduced in the Financial Times, indicate that port loadings and unloadings among the BRIC emerging economies rose by 7.5 per cent in the first half of 2013 compared with the same period in 2012. It would seem to confirm that global trade is beginning to pick up, but the figures also tell another story.

Of the 90 million container movements reported, 78 million were in China and the pick-up rate in India is weak. While China's growth was steaming at more than 7 per cent, India was drifting at less than 2 per cent.

Readers will know that the Chinese government has been pumping money into local government projects to keep the pot bubbling. That may stimulate a trade bounce, but for shipowners, it's no reason to expand the fleet. Instead, they should tell their captains to ease back another few knots.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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