CMA CGM looks to South America for growth

CMA CGM looks to South America for growth    2011 will be profitable, but 'a more classic year with financial results that are more in line with the industry standard' following exceptional profits realized by it and other carriers in 2010, and the losses the industry saw in 2009, said Rodolphe Saade, executive officer of CMA CGM.
   'Longer term, it is difficult to predict,' said Saade, chief executive officer of the Marseilles-based company. He believes in 2012 and beyond 'the trend going forward will be positive' noting continuing strong demand for container transportation.
   Saade notes that CMA CGM, the world's third-largest container shipping line, is able to 'balance fairly well our risk all over the place. Today the market we see under pressure is Asia/North Europe. The markets that are strong and booming are South American trades, especially Brazil. Volumes in and out of Brazil are fairly strong and volumes into West Africa are also pretty positive.'
   Earlier this week, the French carrier reported profit of $237 million in the first half of 2011, 72 percent less than the $849 million it earned in the first half of 2010. Revenue for the first half amounted to $7.31 billion, 8 percent more than the $6.77 billion in the first half of 2010.
   CMA CGM is planning how best to take advantage of the expansion of the Panama Canal, expected to be completed in late 2014, when the maximum size containerships able to pass through the waterway will grow from about 5,000 TEUs to more than 12,000 TEUs.
   Trade from Asia to Brazil and other parts of South America is booming, and the company would also like to take advantage of strong demand for refrigerated cargo — meat, poultry, fruit and vegetables — in Asia from South America, he said.
   CMA CGM is considering ordering vessels that would match that demand and make good use of the larger locks in Panama. Ships with about 9,000 TEUs capacity appear to be a good size for that trade, he said.
   According to the information service Alphaliner, CMA CGM has a fleet of 397 ships, with total capacity of 1.3 million TEUs (302 of the ships and 61.7 percent of the TEU capacity is chartered).
   The company has on order 15 ships with 135,906 TEUs or 10.3 percent of its capacity, the smallest order book of any of the top 20 carriers, according to the Alphaliner statistics.
   'Don't forget that back two or three years ago we had a massive order book, and we are taking delivery still of some of the vessels we have ordered three years ago,' Saade said. 'We still have a couple in 2011 and 2012.'
   CMA CGM also said in August it has signed a deal to expand the Gordon Cay Container Terminal in Kingston, Jamaica, and operate it over the next 35 years.
   With larger ships using the Panama Canal, the company expects it will increase its use of Kingston, feedering cargo to and from smaller ports in the Caribbean, Central America, and South American countries such as Venezuela and Colombia, Saade said.
   But he expects CMA CGM to continue to serve Brazil and U.S. East and Gulf coasts ports with vessels making direct calls.
   'We believe the U.S. market is a very sensitive market — sensitive to transit time and service quality,' he said. 'I don't believe we will be serving the U.S. with transshipment.'
   CMA CGM wishes to grow its U.S. market share. He said the company has good presence in the transpacific, including services to the Pacific Northwest, and plans to continue to expand service with South America while maintaining its smaller transatlantic presence.
   'However, the economy in the states was a little soft for the past couple of months, so we also need to follow market conditions and adapt our capacity accordingly,' he said.
   Kingston is just one of several major hubs CMA CGM maintains around the world. Other major hubs include Port Kelang in Malaysia for Southeast Asia; Khor Al Fakkan in the United Arab Emirates for the Middle East; Tangier for West Africa; and Malta for the Mediterranean and North Africa.
   Saade said the company might add other terminals around the world, specifically pointing to West Africa.
   But he noted shipping companies face big demands for capital investment not only in terminals, but also ships and containers.
   'In today's industry it is difficult to get financing from banks, so we have to set priorities,' he noted.
   If the company orders ships, he said it would look at chartering rather than buying them.
   'Today, China offers a lot of options to shipping lines like ours — they offer not only to build state-of-the-art vessels, but also financing,' he said.
   The company is also open to other financing options, such as leasing ships from firms like the New York Stock Exchange-listed Global Ship Lease, which owns 17 vessels that are chartered to CMA CGM. But Saade noted his company had 'no commitment to GSL and no commitment from GSL to us.'
   Asked about Maersk's orders this year for 20 containerships with 18,000 TEU capacity, Saade said they would require special port infrastructure. CMA CGM feels its largest vessels, like the 13,830-TEU Christophe Colomb, are the right size for today's market and give the company 'very competitive system costs.
   'There is no race between us and Maersk and MSC on vessel size.' He noted CMA CGM has successful space sharing agreements with Maersk in both the transpacific and Asia/Europe trades.
   'If it makes sense for both parties to continue, then it should,' he said.
   CMA CGM operates under a number of different brands, including Delmas in Africa and CNC in the intra-Asia trades, MacAndrews in Europe and    U.S. Lines and ANL in the transpacific and Australasia trades.
   Earlier this year the company had CMA CGM absorb the O.T. Africa brand, which operates alongside Delmas in Africa.
   'Branding is an emotional question, but we end up deciding that the best way moving forward is to maintain a multibrand strategy,' but to have all back office functions consolidated, he said.
   Saade said the investment by the Yildirim Group in CMA CGM has strengthened the company financially. CMA CGM sold $500 million in redeemable bonds earlier this year to the Turkish company, giving it a 20 percent stake in the company.
   'We meet frequently and have open and frank discussions,' Saade said. In five years the Yildirim will have to option to convert the bonds into shares, and the Saade family will also have the ability to buy them back.
   'In five years we may say the time has come to split or we may say we enjoy very much the relationship with them and would like them to stay,' he said.
   Saade said that even as he has increased his responsibilities within the company, his father Jacques, chairman and chief executive officer of the company, is as active as ever.
   'He is still very hands-on and running the show,' he said. ' Chris Dupin