Monday, October 7, 2013

The world's biggest shipping group, Maersk Line, says the Christmas season is unlikely to boost sluggish shipping business this year because of slow global demand and an "unsustainably low freight rate".

David Skov, the Danish shipping company's head of South China operations, made the comments in Hong Kong yesterday, echoing the concerns of local exporters who said they had seen big US retail chain Walmart and sportswear brand Nike cut orders for the festive season.

"We haven't seen a Christmas or Golden Week rush this year, traditionally this season should be very strong for trade, but it's going to be different this year," Skov said after the maiden port call of its first Triple E container ship - the world's largest - in Hong Kong.

As cargo growth is likely to stay flat over the next two months, Maersk - which alone handles a fifth of cargo on the lucrative Asia-Europe route - planned to make another attempt next month to raise the freight rate, currently around US$765 for each 20-foot container, by US$950 as it had fallen below the widely recognised break-even point of around US$1,000 to US$1,100.

"The current rate is simply not sustainable, it has to come up," Skov said.

The rate slide was not only caused by slower-than-expected economic recovery but also increasing efforts by shipping companies to buy new ships amid low prices and brighter outlook next year - which threaten to upset the supply-demand balance again.

"Most shippers managed capacity well in 2012, but they have been less disciplined this year," Skov said. Shipbroker Golden Destiny said 30 vessels with a total deadweight of 1.5 million tonnes were ordered last week.

Maersk's chief executive, Soren Skou, told The Wall Street Journal earlier that it had overestimated demand for container shipping when it spent US$3.7 billion to buy 20 Triple E ships two years ago.

To minimise supply and ensure smooth fleet replacement, Skov said Maersk would cap the Triple E's capacity at 14,000 containers, down from a maximum of 18,000, until early next year.

The Danish shipper is betting on a proposed alliance with the world's two other major container companies - CMA CGM and Mediterranean Shipping - to cut costs by about 8 per cent and reduce the number of ships on the Asia-Europe route to 250 from 300. All 20 Triple Es - which are said to consume 35 per cent less fuel than the company's fleet average - would be shared with its two rivals.

As for the Shanghai municipal government's move to allow mainland vessels under foreign flags to do transshipment in the city's new free-trade zone, Skov said he hoped the authorities would consider opening the sector to foreign vessels as well.

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