Bloomberg published an article regarding same. I am quoting in it's
entirety, as a link might expire.
Maersk Shareholders Suffering With Overwhelming Container Supply: Freight
By Christian Wienberg and Marianne Stigset - Oct 18, 2011 5:00 PM CT
The container operations of Maersk, which carries 15.7 percent of the world’s container capacity, according to Alphaliner, lost $45 million in the second quarter.
The container industry may be facing half a decade of oversupply that will curb freight rates as shipping lines launch vessels into a global trade slowdown.
The rise in container capacity will exceed demand by as much as 10 percentage points over the next three years, according to Drewry Shipping Consultants Ltd. That gap won’t substantially improve for five years, Neil Dekker, head of container research at Drewry, said in an Oct. 11 interview. Those estimates assume no slump in world economic output.
Global growth will slow this year as “crisis-hit” advanced economies struggle and Europe’s debt woes prove “tenacious,” the International Monetary Fund said last month. An increase in vessels from shipping lines like Copenhagen-based A.P. Moeller-Maersk A/S has helped send freight rates plunging 70 percent since a 2010 peak. On its current course the industry will struggle to turn profitable, said Ross Porter, a Stavanger, Norway-based fund manager at Skagen A/S.
“The market outlook is pretty bleak,” Porter said in an interview. The fund, which has $18 billion under management, owns about 10,000 Maersk shares after cutting its holdings by 20 percent last month. “Given the overcapacity that’s built up in the market, a few years will be required to consolidate the situation.”
Capacity in the container market will rise 29 percent in the three years ending in 2013, according to data from London- based Drewry’s quarterly Container Forecaster report. Demand will grow by as little as 19 percent in the period, it said.
No Layups
There won’t be a “major” improvement in the balance between supply and demand for five years, Dekker said. Ships on the world’s two busiest trade routes, Asia to Northern Europe and Asia to the Americas, are only about 85 percent full at the moment, he said.
“Freight rates are very low,” Dekker said. “It would be logical to lay up vessels, but that’s not really happening.”
The price to transport a full 20-foot container from the biggest Asian ports to European ones fell to $650 in the first week of this month, according to Danske Market’s container index published Oct. 7. That was the lowest spot price in at least two years and compares with a peak of about $2,100 18 months ago.
The fallout from Europe’s deepening debt crisis is showing signs of spreading as far as Asia as policy makers in the euro area fail to persuade investors they can avert a Greek default. Asia faces “severe macroeconomic and financial spillovers” from deteriorating economic outlooks in Europe and the U.S., the IMF said Oct. 13.
Shipping Demand
That means container shipping demand could grow even less than Drewry estimates, Dan Togo Jensen, a transport analyst at Svenska Handelsbanken AB in Copenhagen, said in an Oct. 13 interview. He has a “reduce” recommendation on Maersk shares. Jensen is the top-ranking analyst of the 25 covering the company, according to Bloomberg data.
“Box rates will be under pressure” because the imbalance between supply and demand will persist “for quite some time,” he said.
Container lines have booked orders for new ships for a combined $57 billion, according to an Oct. 11 estimate by Paris- based industry consultant Alphaliner. Over the next four years, new ships will add capacity equivalent to 4.5 million standard 20-foot containers, or TEU, versus today’s 15.2 million TEU, according to Alphaliner.
More Room
Vessels that can haul the equivalent of about 1 million TEU will need to be idled or laid up, the Baltic and International Maritime Council, a Bagsvaerd, Denmark-based shipping trade group, said in an Oct. 13 report.
Ships are being built larger as well. The size of container ships has more than doubled over the past decade. New deliveries this year on average carry 6,100 TEU, compared with 2,900 TEU in the year 2000, Alphaliner said in a Sept. 29 report. The size of the world’s fleet of ships with capacity larger than 8,000 TEU will increase by more than 20 percent annually over the next years, outpacing overall supply growth, Drewry says.
The container operations of Maersk, which carries 15.7 percent of the world’s container capacity according to Alphaliner, more than any other, lost $45 million in the second quarter. It earned $1.1 billion a year earlier, Bloomberg calculations show. The unit may lose money in the rest of the year if freight rates don’t recover, the company said Aug. 17.
Dropping Shares
Maersk shares have lost 31 percent this year. The world’s second and third-largest lines, Geneva-based Mediterranean Shipping Co. and France’s CMA CGM SA, aren’t listed.
CMA CGM has seen the price of its $475 million of 8.5 percent notes due 2017 plunge to 45.567 cents on the dollar since they were sold April 14, according to prices compiled by Bloomberg.
There are some signs shipping lines may reduce capacity by canceling or postponing orders for new vessels, Martin Bo Hansen, a corporate bond analyst at Jyske Bank A/S, said in an Oct. 11 note. Hansen, who’s based in Silkeborg, Denmark, has a “hold” rating on Maersk’s debt.
CMA CGM has no plans to order any new container vessels before next year at the earliest, Chief Executive Officer Rodolphe Saade said Oct. 11. The line was approached by two Chinese shipyards about possible orders for vessels larger than 9,000 containers and declined, Saade said.
Shipping lines are betting demand will catch up with supply sooner than Drewry’s analysis shows. Eivind Kolding, CEO of Maersk Line, said Oct. 5 in an interview broadcast by Danish TV2 News that overcapacity probably will last a year at most. That will still be long enough to put some smaller container lines out of business, he said. Maersk hasn’t announced any plans to cut capacity.
The company declined to comment for this story, in compliance with a self-imposed silent period ahead of third- quarter earnings, due to be published on Nov. 9.
Overcapacity may thin out the industry, with only the biggest companies surviving the pressure on freight rates, Skagen’s Porter said.
“In the long-term I see Maersk coming out as the relative winner,” he said. “They have the financial strength to weather this cycle, which a lot of their competitors don’t.”
To contact the reporters on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net; Marianne Stigset in Oslo at mstigset@bloomberg.net
