The big shipping line squeeze …

As overcapacity hits its rivals, Maersk Line looks poised to benefit, according to a Bloomberg report. This as AP Moller, the owner of this largest container line in the world, is prepared to outlast rivals as the industry faces four years of overcapacity. “We are actually quite well positioned for a longer stretch of tough competition,” said Nils Andersen, CEO of the Copenhagen-based company. “It would be natural if the smaller players in this business, or their banks, start questioning whether it’s a good idea to keep competing.” Although this is not directly related to the SA trades, a shipping line executive hinted to FTW that it could have an indirect repercussive effect on the lines involved in the trades. It’s all a matter of the overall economics of the shipping line industry, and any misfortune will roll down the line from the major trades (Asia-Europe and Asia-US trans-Pacific) where the battle for survival is actually taking place. Maersk Line, Bloomberg added, with almost 16% of the global container market, is betting it can outlast such competitors as Japan’s Mitsui OSK Lines (MOL) and Nippon Yusen KK (NYK), both of which have cut capacity to cope with falling freight rates. These two lines, Japan’s largest, last month cut their capacity after reversing profit forecasts to loss predictions for this fiscal year. “Maersk is the container line that has the scale and the strong balance sheet to play this volume game, particularly as it’s better than the competition on keeping costs low,” said Per Kronborg Jensen, a senior portfolio manager at Sparinvest. Maersk is better positioned than rivals to ride out the container glut because its size helps it keep costs down through economies of scale, Jacob Pedersen, an analyst at Sydbank told Bloomberg. Maersk’s parent, which also owns the Nordic region’s second-largest oil company, provides a strong balance sheet to help absorb losses, he added. Smaller shipping lines have already scaled down, according to shipping-data provider Alphaliner. CSAV, Horizon Lines, Grand China Shipping and TCC ASA, which had a combined market share of as much as 4.5% on trans-Pacific trade, have cut back, it said in a note distributed on November 8. Joining in the ‘carve-up your competitors game’, the world’s second- and third-largest container lines, Mediterranean Shipping Company (MSC) and CMA CGM, also plan to squeeze rivals out of the market, said Copenhagen-based Finn Bjarke Petersen, an analyst at Nordea Bank. The container industry will lose money this year as oversupply sends freight rates plunging, Maersk’s Andersen said. In 2009, the first year the industry failed to turn a profit since the 1970s, Maersk Line idled ships. The company won’t do that this time and is ready to reduce prices to preserve market share, he added. “There’s already overcapacity and the orderbooks for new ships are still big, so I don’t think that freight rates will recover enough in 2012 to make it an attractive industry to be in. There’s no need for new ships the next four years.”