Maersk CEO explains rate increases, asks shippersÆ help on congestion
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Eivind Kolding, chief executive of Maersk Line, on Friday admitted to shippers gathered in Portugal that freight rate increases have no bearing on improved service levels, explaining that price hikes are necessary to combat soaring costs that are often outside the control of the lines.
“Freight rates are not based on quality but the market,” he said in response to a question posed by a delegate at the European Shipper Council’s Forum in Lisbon who asked: “If we pay more, do we get more?”
There is a suspicion among shippers that conferences such as the Far Eastern Freight Conference have been pushing up rates simply in order to set a high benchmark for when they are outlawed next October. Last week’s 2008 eastbound business plan announcement by the FEFC included provision for a further rise on Oct. 1, 2008, just weeks before the official repeal of EC Regulation 4056/86 on Oct. 18, 2008.
Presenting the liner carrier view of market trends, Kolding admitted his company’s takeover of P&O Nedlloyd had created an “abnormal disturbance” in the market in 2006, but said carriers are struggling with “external” inefficiencies in the supply chain such as terminal congestion and European infrastructure that cannot match projected growth rates in container volume.
He said in order to sustain the low rate levels carriers now must reach 90 percent or more ship utilization. That figure rises to 100 percent in peak seasons, he said.
Over the vexed issue of ancillary charges such as bunker adjustment factors, Kolding said that lines are forced to pass on some of the cost to their customers because fuel prices continue to rise sharply, increasing $180 per FEU through 2007.
“We are fooling ourselves if we think a low-margin business like container shipping can sustain these extreme rises,” he said.
He said the success of the liner industry will depend more and more on shifting cargo to and from port hinterlands and that will require help from shippers.
“Congestion is going to get worse. That’s for certain,” he said, pointing out that volumes are set to double in the next eight years creating tighter berthing windows and restricted terminal space.
To make best use of the available capacity, Kolding urged shippers to be more flexible in their pick up and delivery times to off-peak, non-daytime slots. Also, better information exchange with shippers giving longer-term volume forecasts would enable carriers to plan ahead for investments and networks, Kolding said.
“Without the help of the customers, structural congestion in the future can not be prevented,” he said.