Container shipping well-positioned to ride out pandemic
Container shipping is far better positioned to ride out the coronavirus pandemic than it has been when confronted with previous crises, according to Soren Skou, CEO of AP Moller-Maersk.
Speaking to analysts yesterday after reporting a profit bump in Q1 that was buoyed by resilient spot rates despite declining demand, the head of the world’s largest box shipping line outlined a range of structural changes to the market that would help provide stability in the months ahead.
“I would say there are a number of competitive dynamics which are different than what we have seen, certainly [during] the global financial crisis [in 2008-09] but also during 2011 and in 2015 when the industry on the carrier side had quite brutal price wars,” he said.
For example, Skou said the alliance system consisting of three major east-west alliances – the Ocean Alliance, 2M, THE Alliance – enabled simpler, “agile” capacity adjustments.
“In our case, for example, we operate between North Europe and Asia to the Mediterranean 13 /14 strings per week and it’s obviously a lot easier to take one out as opposed to if you are a small VSA (Vessel Sharing Agreement) who operates one or two strings,” he said.
When changes to services are made they are now less disruptive to the overall network, while “taking decisions to adjust capacity is very easy, simple and quickly done”.
Skou also said the historically low order book for container ships “is geared towards a low growth scenario” and would be beneficial for the sector as it rides out the current crisis.
“This was not the case in 2008/9 when all the order book was massive and a lot of the carriers had big blocks of capacity coming to them that they had to fill,” he said.
Lines take back pricing control
He also said freight rate indexes meant capacity and pricing decisions were less reliant on customer feedback and “more on our organization and so on when we are setting prices”.
Skou also does not expect a leading carrier to break ranks and drop prices in pursuit of market share.
“I can say for Maersk at least that we are not pursuing market share,” he said. “We are planning to grow slightly below the market and we will do what we can to protect profitability,” he said.
“In seems to me many other carriers are doing the same and one of the reasons could be the generally quite weak balance sheets in the sector.”
However, while carriers might have better insight into current freight rates and more control over supply, they still have trouble reading the intentions of customers.
Skou said one of the reasons A.P. Moller-Maersk had suspended guidance for 2020 was due to the difficulty of forecasting how the end of lockdowns would impact shipping demand late in the second quarter and into Q3, not least because there is currently little transparency into likely BCO behaviour.
“In terms of customer inventories and what our customers will do, the visibility is very low and one of the reasons for why we are not guiding for the whole year is that it’s not clear to us or our customers how their inventories will develop,” said Skou.
“A lot of the stuff that has been shipped and not stored will not be able to be sold later in the year if it’s clothing for the spring and summer. So it’s difficult for us to estimate what will happen.”
© 2019 Worldfreightrates News