Riding the Waves

We all know 2009 was a terrific storm. Is the storm behind us? Let us first look at 2009 and what happened there. We’d like to forget it, because Maersk Line had days where we lost USD$9 million per day. You can imagine the kind of impact that has on an organization—on service levels, on head office activities. The volumes dropped by 14 percent…and the revenue dropped by 30 percent. The bottom line was [a loss of] nearly $4 billion, from a profit of $2 billion to a loss of $2 billion.

We at Maersk Line were, of course, not alone—the whole industry lost a great deal of money. The average loss to a shipping company was $1,500 per TEU (20-foot-equivalent container unit).

That was 2009. Let’s look at 2010.

Lots of things have changed. We think the worst for shipping is over. But I can also tell you that many people have tried to predict shipping, and they have never been correct. …We can control our capacities [to some degree], but the demand depends on world economic situations. We will have a further look into that.

[Rates] have been impacted significantly, bottoming out in mid-2009. In 2010, when everybody was complaining about high rates, particularly in the first half [of the year], we were not even back at the level of 2008 [rates].

FORECASTING DEMAND

You may know that normally we have an increase in container movement globally of about three times GDP growth. This is a historical fact. If you look at the past, this is how it has been. [However,] if you look at 2009, a 2 percent decrease [in GDP] led to a [container] volume decrease of 10 to 12 percent.

As you know, it takes quite a while to build a ship. It takes time before you have all the financials in order and all of the stakeholders sign off, as with any industry that is heavily asset based. Then, if you are heading in a certain direction and it is the wrong one, it is very, very painful.

Maersk Line’s internal GDP growth estimate remains at 3.2 percent for 2010 to 2015. Where you can see that most is in China and Brazil, which have greater growth expectations. Global supply and demand growth for 2010 [for container volumes] we expect to be about 10 to 12 percent. We think that [container ship] capacity is basically in line with the demand.

Big vessels have proven to be the right decision, and slow steaming (schedules that add extra days to a ship’s voyage but that enable shipping lines to burn less fuel and leave a smaller carbon footprint), which you all have heard about and we will go into a little more detail on, is here to stay.

The capacity growth, we think, will be in the 6 to 8 percent range for [2011 and 2012] with slightly less growth, about 3 to 5 percent, predicted for the years 2013 to 2015. Of course this is with expectations of scrapping and slow steaming going on and takes cancelled orders into consideration, which I’ll point out in further slides in more detail.

The bunker fuel price trend is also an unknown thing, but it is good to see that there is some stability right now and that the oil spill in the Gulf [of Mexico] didn’t have an effect that made oil prices crazy. We are looking today at a stable factor here.

We will see a big switch in the countries with leading GDP growth. European countries will be overtaken by India, Russia and Brazil in the coming years. That will not be a surprise, but that will mean that there will be a different deployment of capacities.

Of the commodities exported in 2009 from Europe to outside of Europe via container ships, food and beverages accounted for 18 percent and paper accounted for 16 percent. Out of this paper, I would estimate that about 70 percent was waste. That was 1.8 million TEUs. Chemicals [accounted for] 15 percent.

In 2010 we see that…in the first half of the year, [paper] was only 13 percent of the cake, meaning some 800,000 TEUs —substantially lower than in 2009. In the second half of 2010, the boom in exports from Europe for recycled paper has not really taken off.

DELIVERIES AND CANCELLATIONS

Containership deliveries by quarter declined in 2009. In 2011 and 2012, there are ongoing investments planned, and new deliveries check in with 3 to 5 percent growth for after 2012.

We at Maersk Line are increasing the capacity here by almost 20 percent in Europe in order to be on the safe side. Whenever it is required, we will put [new capacity] in. We are in container shipping to stay.

What happened in 2009 mainly is that shipping companies tried to get rid of their commitments on new builds, as demand was diminishing rapidly. Ships that can carry between 1,000 and 2,000 TEUs have been canceled. Of the bigger [ships], those that carry more than 7,500, some have been canceled and others pushed forward for delivery at a later date.

You can expect [capacity] to grow by 8 to 10 percent in 2010. That includes considering the scrapping and the cancellation or the deferrals or delays of capacity. An additional 3 percent of these are the previously mentioned slow, or even super-slow, steaming vessels.

Ordering activity is slowly picking up [in 2010], with significant orders planned in 2011 because they could not be held off further. These orders are expected to be delivered in the years up through 2015.

The crisis was also good for something: first of all, the environment and, secondly, for all our new ideas. Less of our fleet will be idle as of January 2011, and even less will be idle as of Jan. 2012. The active capacity, thanks to scrapping and slow steaming, will be more or less under control. The bigger ships are being used, the smaller ships are being laid up for further employment. The bigger ships, with their lower fuel consumption and bigger capacities, are more efficient.

SLOWING THINGS DOWN

The capacity absorbed by super-slow steaming, or as some analysts call it, extra-slow steaming, is quite large. We will continue with the super-slow steaming, and I will let you know why. Super-slow steaming requires more containers. You need more containers because they are on the water longer. This is also a change in behavior for the carriers. Slow steaming is here to stay because we think it has been accepted across the industry and it provides a cost advantage, which is clear, in CO2 emission pressures. You might have heard that the state of Singapore and the city of Hong Kong have been complaining about ships laying [in their ports] and emitting CO2 from their stacks while they are loading. The Port of Rotterdam has decided to give all clean-burning engines a rebate or a discount in port tariffs. We will all see the governments and semi-government institutions having a higher impact on how we are treating our environments, especially in the transportation business.

The key question for customers like you who would like to ship is, are we going into a deep dive into unsustainable rate levels with reactions thereafter, or are the carriers more cleaver and have they learned from the past. Today’s paper rates are less high then they may have been a couple of months ago. That is an indication for the first statement. As you may have heard, most of the carriers have taken away or have announced the withdrawal of capacity on Asia-Europe, where the biggest flows are going, in order to not fall into this trap again.

Of course [our customers] should ask for environmental performance. CO2 emissions are the lowest for sea shipments already. Maersk line, as a Scandinavian company, has set ourselves a very steep target [for further lowering emissions].

A lot can be done. I will not bother you too much with all of the details. There are a lot of high-tech possibilities for reducing CO2 emissions, and that is where Maersk Line is a front runner.

Reliability also is crucial for shipping lines. Seventy-seven percent of ocean-going shipments are on-time, and on-time means within 24 hours of the announced ETA or ETP. Maersk Line puts a high emphasis on being on time, and with slow steaming, it is easier to catch up than if you are already steaming very fast.

Customers should ask for ease of business. This is maybe not so paper friendly, but I think we have to mention this. The old method of a lot of steps before we get the container on board and all the documents issued is maybe the same thing we did 50 years ago. I think there is a great opportunity in looking into the Web-based or Internet-based platforms to be far more efficient and make it easier.

Michiel Messchaert, who works from Hamburg, Germany, is sales and marketing director for Maersk Line, headquartered in Copenhagen.