The annual report for 2012 from the world's largest container carrier, Maersk Line, shows - if anything - that the battle to end up victorious in the ruthless, global container market is a battle being fought on the ability to cut costs, says Lars Jensen, partner and CEO of SeaIntel, who keeps a running analysis and commentary on the international container market.
The fight for rates, or the joint struggle to increase the rates, is simply becoming too difficult to handle for the major shipping companies to bet their finances on it, as the rates turned out to be highly volatile in 2012 and, according to Lars Jensen, will probably be even more unpredictable this year.
"The Maersk Line annual report looks incredibly sensible. A big part of it is due to cost savings. Even if the rate level in 2012 had been as bad as in 2011, Maersk Line would have reached break even, and that's very impressive. The shipping companies are less and less able to control the rates, something that will only become more clear in 2013. Maersk Line has proven that they control the revenue by cutting costs," says Lars Jensen to ShippingWatch.
Maersk Line writes in the annual report that the fuel consumption per FFE was reduced by 11 percent (from slow steaming, among other things), and the number of employees at the headquarters in Copenhagen was reduced signifcantly (by 400 employees, ed.). And one of the five focus areas for 2013 deals with just that; "the network cost initiative," which is concerned with building a more profitable network of ships, while the "total unit cost initiative" aims to achieve the lowest cost possible in the market.
"I expect they can do even better on the cost side in 2013. It's absolutely crucial, as we'll face another year in which new capacity in the market will surpass the requirements of global growth. This means that the key to the entire industry is cutting costs," says Lars Jensen.
He also believes that Maersk Line stands a solid chance of maintaining the balance of the market when the new Triple-E ships start to enter the market the summer of this year. The shipping company has a fair share of chartered ships that it can easily get rid off, he says. In addition to this, Lars Jensen expects that the industry in general will rely on merging services, like Maersk Line did this week, as well as co-sailing, in which the shipping companies use each other's ships for transporting containers.
And the analysts at Fearnleys are also positive toward Maersk Line's approach to cutting costs.
"Maersk Line surpassed its competition significantly in the fourth quarter 2012. In our opinion, Maersk Line is displaying an impressive degree of control over its costs," writes Fearnleys in an analysis of the Maersk Line annual report, published today.
Triple-E on the way
Maersk Line will receive the first four of its massive Triple-E ships in the second half of 2013, says A.P. Moeller-Maersk CEO Nils Smedegaard Andersen at a conference call.
"The first four will be delivered during the second half of the year and will be phased into the Asia-Europe route. This will of course happen with respect for the market balance, so we'll pull tonnage out of the route if necessary," he says.