• DATVF.ATLPHL
    1.814
    0.044
    2.5%
  • DATVF.CHIATL
    2.034
    0.018
    0.9%
  • DATVF.DALLAX
    0.921
    0.071
    8.4%
  • DATVF.LAXDAL
    1.502
    -0.092
    -5.8%
  • DATVF.SEALAX
    0.962
    -0.053
    -5.2%
  • DATVF.PHLCHI
    1.091
    -0.038
    -3.4%
  • DATVF.LAXSEA
    2.146
    -0.004
    -0.2%
  • DATVF.VEU
    1.647
    0.009
    0.5%
  • DATVF.VNU
    1.471
    -0.010
    -0.7%
  • DATVF.VSU
    1.211
    -0.011
    -0.9%
  • DATVF.VWU
    1.554
    -0.028
    -1.8%
  • ITVI.USA
    9,689.350
    14.490
    0.1%
  • OTRI.USA
    7.650
    -0.020
    -0.3%
  • OTVI.USA
    9,678.010
    13.740
    0.1%
  • TLT.USA
    2.730
    0.000
    0%
  • WAIT.USA
    156.000
    -2.000
    -1.3%
  • DATVF.ATLPHL
    1.814
    0.044
    2.5%
  • DATVF.CHIATL
    2.034
    0.018
    0.9%
  • DATVF.DALLAX
    0.921
    0.071
    8.4%
  • DATVF.LAXDAL
    1.502
    -0.092
    -5.8%
  • DATVF.SEALAX
    0.962
    -0.053
    -5.2%
  • DATVF.PHLCHI
    1.091
    -0.038
    -3.4%
  • DATVF.LAXSEA
    2.146
    -0.004
    -0.2%
  • DATVF.VEU
    1.647
    0.009
    0.5%
  • DATVF.VNU
    1.471
    -0.010
    -0.7%
  • DATVF.VSU
    1.211
    -0.011
    -0.9%
  • DATVF.VWU
    1.554
    -0.028
    -1.8%
  • ITVI.USA
    9,689.350
    14.490
    0.1%
  • OTRI.USA
    7.650
    -0.020
    -0.3%
  • OTVI.USA
    9,678.010
    13.740
    0.1%
  • TLT.USA
    2.730
    0.000
    0%
  • WAIT.USA
    156.000
    -2.000
    -1.3%
American Shipper

Shipping’s not fair

ShippingÆs not fair

      All's fair in love and war, but container shipping?

      In November, A.P. Moller – Maersk Group Chief Executive Officer Nils Andersen bemoaned the state-led rescues of rival shipping lines as detrimental to the industry. Andersen argued that by propping up underperforming lines, or ones who had made poor commercial decisions, nations that backed lines in peril create an artificial environment where risk did not really exist.

      'The risk is that we get the feeling that it's risk-free to over-order ships and take away the responsibility from market players,' Andersen said, according to a mid-November Financial Times report. 'If you give a struggling company special conditions and keep them afloat, of course you're inflicting damage on the healthy part of the industry. That may make short-term sense but it's a very dangerous policy.'

   Andersen also criticized ship owners that had cut charter rates for shipping lines to save them from insolvency.

      Maersk is on comparatively sound financial footing given its oil interests, its diversity of business within the liner shipping division, and its relative paucity of ordered vessels.

      Yet, as leader of the pack, it has been sounding alarm bells about the health of the industry as a whole. Executives have called for consolidation, saying the global recession and supply surplus has revealed a need for weaker players to fall away. Maersk hasn't outright said it will be the one to do the acquiring, but has hinted it is raising cash to take advantage of opportunities that arise.

      Andersen's plea for fairness is well-reasoned. Take away the national pride that sometimes colors decisions about container lines and one can't help but think the players troubled by huge amounts of debt would have already perished or been absorbed by a rival.

      But others may view Maersk's unease with competitors getting state backing as sour grapes. Maersk's dominant positions in key trades have put some lines in a bind, forcing them to order ships to keep pace with the world's biggest container carrier.

      Either way, it won't make much of a difference. The governments who have given, or will give, backing won't reconsider just because Maersk doesn't like it. Since when does Germany or France take its cues from a Danish shipping line?

      On another note of fairness, containership owner and leasing company Seaspan is apparently upset by what it perceives as special treatment South Korean shipyards might give to troubled carriers with regards to the delay of vessel deliveries. A major Hong Kong-based investor in Seaspan recently conveyed that message to Samsung and Hyundai Heavy Industries, according to a December report by Lloyd's List.

      The reasoning is carriers and ship owners with strong balance sheets shouldn't be penalized just because competitors in more precarious financial situations come begging for order delays and cancellations in desperation. That puts stronger companies at a disadvantage, particularly since Seaspan negotiated delay options for some of its vessels, options that it took, the report said.

      Whether shipyards heed this call for fairness is unclear. With no orders pending and a severe capacity glut looming, they'll probably make deals that suit their short-term needs and count on short-term memory from upset ship owners, figuring that all will be forgotten when vessels are needed again in a few years.



Maersk's slow-steaming plan

      Going back to Maersk, the container line said in November that it would be 'ultra-slow steaming' all of its Asia/Europe services during the winter season to cut down on fuel consumption.

   Superficially, it's a strange move. Imagine a McDonald's employee telling you he was going to take a much longer amount of time to make your Big Mac and fries than you were previously accustomed to. Of course, slow-steaming has benefits that slow-moving fast food employees don't provide.

      But aside from those benefits that all lines enjoy, the ultra-slow speed plan meshes perfectly with Maersk's portfolio. Its oil and gas division stands to benefit greatly by increased oil prices while cutting speed vastly reduces its consumption of that very same fuel.

      Imagine this scenario: increased bunker recovery (due to rising oil prices) while the amount of fuel consumed goes down; all the while, Maersk's oil resources are being maximized as the cost of a barrel of oil far exceeds the price at which it should be sold according to demand. It seems like a great formula.

      Not only that, but other carriers would have to fall in line. They couldn't possibly offer the same rates as Maersk if Maersk had a cost advantage from lower fuel consumption. It's a spoil of being at the top of the tree. But none of the other top lines have the fuel hedge that Maersk enjoys through its oil and gas division.

      One last benefit: slow-steaming is not only a good way to cut consumption and save on costs, it also sells as a green initiative in that emissions are theoretically cut from slower operations. That's a win-win-win for Maersk, who must be silently muttering, 'let the slow, high-oil-price season commence.'



Untangling new friendships

      It's hard to tell just how long the marriages of convenience between lines in the top 20 will last. Much like no one has a really clear picture of when demand will rebound, only the lines engaged in these unusual partnerships the past few years will be able to tell when to go their separate ways.

      As we've chronicled in recent issues, collaborations like Maersk, Mediterranean Shipping Co. and CMA CGM's extensive vessel-sharing agreement on the transpacific seem designed to cope with short-term constrictions on demand and rates.

      But as rationalizations get more severe over the winter, the relationships seem to become more co-dependent. The Grand and New World alliances deal last winter to share space on all-water transpacific services to the U.S. East Coast led to the temporary suspension of a New World service, while this year, the pact was repeated, but with a Grand service being temporarily pulled.

      The Maersk-MSC-CMA CGM iterations change frequently, with one common theme: one line to provide services and the others to occupy slots on those ships.

      It's hard to imagine a scenario where these relationships last beyond demand rebounding, but then who knows when that will be? CMA CGM said in November it expected its operations to return to profitability by December, but there was no mention about ditching its pact with its European cohorts. In fact, the rationalizations that pact has enabled are likely a big reason why the French line was able to boldly pronounce it had turned a corner in the first place.

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