Maersk Line seems ready to lose market share in the refrigerated container market if that’s what’s required to drag rate levels higher.
The carrier’s Chief Executive Officer Soren Skou on Tuesday announced the line will raise rates by an average of 30 percent on reefer shipments from Jan. 1.
The news, delivered during a keynote at the Cool Logistics conference in Antwerp, was reportedly met with stunned silence by the audience. The aggressive rate hikes, coupled with a planned reduction in reefer container investment in 2013, are part the line’s plans to increase profitability in the market.
The proposed rate hikes could have a profound effect on the industry, given that Maersk maintains roughly one-quarter of the global market share in the reefer business, surpassing its share in the dry cargo sector.
Aside from the increase, which amounts to about $1,500 per 40-foot container, Maersk will also curtail production of reefer units, of which it planned to make around 30,000 units next year.
In late August, Skou told the Danish magazine ShippingWatch the fundamentals of the reefer industry had to change and Maersk was, in effect, bearing the brunt of a depressed rate environment due to its global market share in the sector.
“The return is not good enough,” Skou said in the interview. “With a 24 percent market share, reefers are an area where we are, to put it mildly, overweight. We’ve spent a lot time investigating how solid this idea really is. Because, if you look at the reefer business, a reefer container costs four to five times as much as a regular container. So the investment alone is a lot bigger.
“And we don’t just need the boxes. We also need the plugs, electrical outlets on the ships and on land, the costs of electricity, more expensive insurance, etc. So there are a lot of additional expenses. Which is fine, if there is an extra profit as well, but we’ve reached the conclusion that our reefer business fails to meet this criteria.”
Skou intimated in the interview that Maersk would be raising rates, a foreshadowing for Tuesday’s announcement. He also said that Maersk was willing to forgo market share if the rate hikes aren’t effective.
“We’ve concluded from our analyses that it might pay off to reduce our market share, if we can’t increase the rates.”
Reefer shippers are likely to be upset at the proposed increases, particularly those who use Maersk solely or predominantly for their frozen and chilled cargoes.
Shippers at the conference in Antwerp voiced their concerns, according to the Twitter feed of Gavin van Marle, who writes for the shipping blog Loadstar.
Andy Connell, logistics manager for Dole South Africa, said the increase had to be accompanied by better service to justify such a significant rise, adding the shipper’s business at present couldn’t sustain the proposed hike. A Carrefour Belgium representative said increases were understandable, but there was a limit to it, and Maersk’s increases must be enforced uniformly across its customer base.
Frank Ganse, global director of reefer logistics and perishable cargo at the Kuehne + Nagel, told the conference he supported the industry, telling shippers they need healthy carriers. – Eric Johnson