Maersk Sees Calmer Waters

Maersk Line generated nearly $2.3 billion in profits in the first nine months of this year, aided by a 34 percent year-on-year increase in average freight rates and a 7 percent increase in volume.

Maersk Line, one of the world’s largest container carriers by volume and market value, is planning to further combine intra-Asia imports with its global export network to strengthen its advantages in the region.

Tim Smith, CEO for the North Asia region of the company, says the company is locked into China’s increasing imports since the country normally buys raw materials or partly processed goods from other parts of Asia before assembling and sending them out as exports.

“I think we have to place more focus on the import market than we have done. If you look at our organization design, it is mostly focused on servicing the export business. We have to step up, for example, the number of sales people we have looking into the import market,” he says.

Smith says the company also needs to look carefully at the rotation of vessels because most port designs are to ensure better export connections to principal destinations. 

“The port rotation should be different because the ports for imports are not necessarily the same as the main ports for exports,” he says.

Boosted by regional free trade development and strong growth, the intra-Asia sector will become the new focal point of the shipping market, says Bronson Hsieh, vice-group chairman of Evergreen Group and chairman of Evergreen Marine Corp.

In 2009, intra-Asia cargo volume reportedly dropped 2.6 percent year-on-year. During the first half of this year, cargo volume increased 16.9 percent from a year earlier period. The performance of both periods outstrips the long-haul markets from Asia to the United States and Europe.

Smith says he was very surprised by how quickly the industry has picked up from the global economic crisis despite the fact that several major economies still face uncertainties. He says that the golden era for the shipping industry has come and gone.

“I was wishing the horrible downturn was going to end this time last year. We were optimistic that things were going to improve. But I think we’ve been surprised by how fast it’s become good,” he says.

Global trade growth will increase 13.5 percent this year, according to the World Trade Organization, the biggest year-on-year increase since 1950 following a faster-than-expected recovery in trade flows. In 2009, world trade declined by 12 percent, the biggest slump since World War II.

After a historic loss of $2.1 billion (1.6 billion euros) in 2009, the Denmark-based Maersk Line witnessed a dramatic uptick in profits, with nearly $2.3 billion in the first nine months of this year that was aided by a 34 percent year-on-year increase in average freight rates and a 7 percent increase in volume.

“The situation in 2010 is a little bit better than the normal level,” says Smith, a 25-year veteran of the shipping industry. He describes the business situation in 2010 as “strange” following unpredictable growth patterns quarter-by-quarter.

The second quarter of this year saw strong growth followed by unexpected average growth in the third quarter, and a slight decrease in the fourth quarter, which is unusual due to the annual expected year-end seasonal demand, he says.

“Shipping is very efficient in terms of cutting CO2 emissions compared with other means of transportation. But shipping’s (sulphur oxides) emissions need to be dealt with,” says Morten Engelstoft, COO at Maersk Line. He expects the voluntary initiative will inspire authorities to raise the regulatory bar.

For Smith, the recovery brought not only benefits and new challenges, but also some disappointment as opportunities for consolidation within the industry dispersed.

“Our feeling (one year ago) was that when the crisis hit, probably some weak companies should have gone out to business, but that didn’t happen. Now that the global economy is improving again, probably the opportunity for consolidation has been missed,” he says, adding it would be a disappointment for the industry because it could become stronger and more stable after more consolidation.

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