Maersk Line CEO Soren Skou called for consolidation in the container-shipping industry, citing “extremely weak” demand growth amid steadily increasing capacity, says a report in the Wall Street Journal.
Skou said sharing costs with partners would help keep freight rates low while allowing shipping companies to remain profitable.
He said: “We are getting the expected benefits from vessel-sharing agreements, but more can come from consolidation. This year, demand growth is extremely weak, around 1.5% to 2%, much less than anticipated, while capacity will grow around 7%. Coming into the year, we expected demand of 3% to 5%.”
Meanwhile, rates have reportedly fallen so low that fuel costs are barely covered, and are purportedly hovering around $300 per container on the Europe-East Asia route, even as carriers say the long-term breakeven rate is $1300 per container.
Container vessels move 95% of the world’s manufactured goods. Last year, Maersk Line and Geneva-based Mediterranean Shipping Co., the industry’s No. 2 player, formed the 2M alliance, the latest in a series of pairings among the world’s top 20 players.
The tie-up saves the two companies a combined $700 million annually in operating costs through sharing of vessels, networks and port calls. Maersk Line is a unit of Danish conglomerate A.P. Møller-Mærsk A/S.
As many as 16 of the world’s top 17 shipping lines, as ranked by existing fleet size, are currently part of four alliance agreements.
The supply-demand gap has been noted, with overcapacity expected to continue for the next three years, according to a recent report released by Drewry, as well as the fluctuation in freight rates.