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Preparing for falling rates, Maersk Line set to invest $15bn in fleet over five years
















By Gary Howard from London










Søren Skou, Maersk Line ceo, outlined the Danish giant's outlook for the container sector at Maersk's Capital Markets Day today and it is a massive investment programme.


The world's largest container line according to Skou faces multiple challenges: supply/demand imbalance, declining rates, the East-West challenge, and protection of its position in North-South trades.





At a simple investment level this means Maersk Line, which has not ordered any newbuildings since 2011, is lining up some significant capex in new capacity. Maersk's current orderbook is not sufficient to satisfy its own growth requirements at projected levels, falling short by around 425,000 teu by 2017-2019, or around 30 14,000 teu ships.




"We have an investment plan in Maersk line which is around $3bn per year on average for the next five years, or $15bn in total. That's covering the ships, the retrofits and of course the containers, IT and other stuff.



"We'll be investing in big ships, that means ships above 10,000 teu. We believe there is a well populated and liquid charter market for ships of 10,000 teu and below,"
Skou explained





Looking at the task ahead for the company in more detail it is one to adapt and be in a position where it can continue to outperform its peers and be profitable, despite any future imbalance in supply and demand and with continuing downward pressure on rates.





The company's expectation is that supply/demand volatility is likely to continue, driven by companies seeking cost savings through new, larger ships, which themselves contribute to the overtonnaging problem and place pressure on rates. In the medium term however, Maersk Line forecasts actual fleet growth across the industry will be in in line with demand for 2015-2016, once the effects of scrapping and slow steaming are taken into account.






"That does not however change our long term view of the business. If we look back in history ten years to 2004, prices [rates per teu] have come down 2% per year, if you look from 2008 then the trend has been 5% per year. What it means for us as Maersk Line is that we cannot build a business on the hope that prices will go up. There is absolutely no historic basis for such a hope,"
Skou stated.





Referring to the East-West trades of Europe-Asia, Asia-America and transatlantic trades as "the old trades" and "structurally unsound", Skou explained that margins in those trades have been low at around 2%, with growth of 3-4%. That low growth, according to Skou, is an important factor when the orderbook is taken into account as it is composed of a number of 10,000+ teu ships destined for the East-West loops.





Skou also saw pressure from competition in Maersk Line's "stronghold" of the North-South trades, where it enjoys higher margins. That pressure is increased by ships cascading from East-West trades as they are displaced by newer, larger ships.




"What are we going to do about it? In terms of supply and demand imbalance we are going to continue what we are doing - staying the course and being disciplined with deploying new capacity. Our strategy will continue to be to grow with the market.




"In terms of declining freight rates in our view there is only one strategy that works in this scenario - lowest cost will win. We will continue to have a deflationary mindset,"
he said, adding that the toolbox of efficiency measure includes route optimisation, utilisation improvements, retrofits and larger vessels.






One other tool in reducing costs is "speed equalisation" whereby the current slow steaming method of a fast headhaul and very slow backhaul is replaced by a more fuel efficient balance of speed between the outward and return journeys.






"On the East-West we will implement 2M, hopefully... and finally we are absolutely committed to protecting our position in the North-South trade by having the lowest cost and the best product and best organisation on the ground."








http://www.seatrade-global.com/news/europe/preparing-for-falling-rates-maersk-line-set-to-invest-$15bn-in-fleet-over-five-years.html

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