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Maersk CEO Predicts Big Squeeze for Small Container - Ship Operators

TIN news:       The world’s biggest container-shipping companies are set to dominate seaborne trade over the next few years, leaving little space for small and midsize operators to compete, A.P. Møller-Mærsk A/S Chief Executive Nils Andersen said in an interview.
 
Maersk Line, a unit of the Danish shipping and oil giant, is the world’s largest container operator, controlling 15.3% of all capacity, according to shipping data provider Alphaliner. On Tuesday, Maersk confirmed a $1.8 billion order for 11 new megaships that will be able to carry 19,630 containers each and will be deployed in the Asia-to-Europe trade loop.
 
“I can’t speak for other companies, but small and midsize carriers-controlling a 3% to 5% market share–with very few exceptions–have been unprofitable for the last seven years,” Mr. Andersen told The Wall Street Journal. “After such a long period of not being profitable, it defies logic to continue to invest in the business.”
 
Container shipping, which moves 95% of the world’s manufactured goods, has been marred by overcapacity over the past decade with a plethora of smaller operators undercutting freight rates, hoping to stay in the business until the industry recovers. At the same time, the biggest operators have been cooperating more closely through mergers and alliances to help defray the big capital costs of building new ships and to reduce running costs, piling on pressure on the small players.
 
Mr. Andersen said demand for container shipping will stay weak in the short term, sinking the smaller players deeper into the red.
 
“Some of those companies have not been able to identify an acceptable way to exit the business, so they continue to throw good money after bad money by investing in more vessels,” he said. “It’s highly unlikely that there will be an easy way to make a profit going forward for a small or midsize carrier.”
 
Demand in liner shipping is expected to grow marginally in the short term, and Mr. Andersen said overcapacity would continue hurting the industry over the next five years. That’s why the big operators, including Maersk Line, are pooling their resources into giant alliances to control costs and try to stabilize freight rates currently hovering at record-low levels.
 
“In the next 12 months, [the industry will] see relatively slow growth, around 3% to 5%,” Mr. Andersen said. “There is overcapacity, but also rewards for those who run their network relatively tight and are realistic in their market forecasting.”
 
Analysts estimate excess tonnage in the water of more than 15% in the main seaborne routes from Asia to Europe and Asia to the Americas.
 
While acknowledging that the megaship orders are adding to overcapacity in the short term, Mr. Andersen said he believes the multibillion-dollar investments will pay off.
 
“Investing in new vessels entails risk,” he said. “But our risk is lower compared to the competition, because we have a larger market share, high profitability and a strong balance sheet. I don’t think it will backfire. We have to see these things in a 30-year horizon.”
 
London-based Braemar ACM Shipbroking estimates that investment in ultralarge container ships, or ULCSs, amounted to about 500,000 containers in additional container capacity in this year’s first quarter, representing half the one million boxes contracted for all of 2014.

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