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Ailing lines must not be rescued

Ailing lines must not be rescued
Governments should not be rescuing struggling shipping lines in an industry that needs consolidation, said Maersk chief executive officer Eivind Kolding.

Ailing lines must not be rescued - Maersk.

Governments should not be rescuing struggling shipping lines in an industry that needs consolidation, said Maersk chief executive officer Eivind Kolding. "When a shipping line is in trouble, everyone comes together - owners, time charterers, banks and governments - to support the line under the premise that it is a bigger loss if a line goes down leaving hundreds of ships idle," he told delegates at the Trans- Pacific Maritime conference in Long Beach.
"But I think it is a negative that we see governments interfere in this industry. They should leave it. It is free trade and a free industry and market forces should dictate what happens."

Kolding said the top 10 carriers had 60 percent of that market. "There are so many players offering products that are not that different, and the industry needs consolidation."

What the container shipping industry racked up instead last year was a loss of US$20 billion, Kolding estimated, following the huge drop in cargo volume and overcapacity dragging freight rates down by 29 percent.

Kolding's own holding company, AP Moller-Maersk, made a significant contribution to the $20 billion industry loss. The Danish giant fell $1.3 billion in the red last year, a stunning drop from the previous year's $3.3 billion profit, and the first full year loss in company history.

Looking ahead to 2010, Kolding said the biggest indicator of how freight rates will develop was the balance between supply of capacity and demand.
"There are some cancellations and scrapping has been accelerated, but we still have an industry with strong supply growth.

"We had a supply growth of six percent last year in a market with declining volume. Slow steaming was instituted across the industry as a cost measure and used up five percent of extra capacity."

Kolding said scrapping of vessels and cancellations or deferment of orders absorbed additional capacity.
Carriers have faced strong criticism from shippers for their huge newbuilding orders that led to the current overcapacity crisis, but the Maersk boss said volatile market changes were difficult to handle.

"What came as a surprise to us and everyone else, is that this inventory correction happened simultaneously in all industries. How can it be that companies all over the world pressed the button to slow orders at the same time? We don't know but that is what happened.
"In 2009, volumes dropped by 20 percent and in 2010 they increased by 20 percent. Lines cannot adjust that rapidly to such a huge change."

Alphaliner analyst Tan Huo Joo brought a positive outlook to the stage, saying he expects that by mid-2011 all the surplus capacity will be absorbed back into service.

"That is quite a significant change compared to our scenario just 12 months ago," Tan said. "A lot of that is due to the changes in delivery and scrapping, but what has really made the difference are the projections of slow steaming.

"We have seen a significant reduction of idle capacity taking place in the last few weeks. This will continue and by the peak season next year, all the excess capacity could be absorbed back into the market."
Tan said this scenario was dependant on the continuation of slow steaming that he estimated would absorb one million TEUs, and on a demand growth forecast of 10 percent.

According to Alphaliner research, 15 strings, or 39 percent of all transpacific services to the US West Coast, have adopted extra-slow steaming and eight out of 19 services, or 42 percent of Asia to US East Coast services, are slow steaming. Lines can make savings of $20 million a year by slow steaming an 8,000 TEU vessel.


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