Maersk Line warns competitors in the price war

Maersk Line warns competitors in the price war

Maersk Line, in the second quarter reclaimed the market shares that the carrier lost in the first three months of the year. This prompted the Maersk Group CEO Nils Andersen to send a signal to the competition that Maersk Line is the industry leader.

Even though Maersk Line’s second quarter revenue of USD 6.3 billion was 9.2 percent lower than in the same period last year – a consequence of the extremely low freight rates on Asia-Europe – the carrier’s combined freight volumes increased 3.7 percent in the second quarter compared to the same period 2014, and 13 percent from the first quarter this year.

Maersk Line’s offensive in the global container market is not least significant in light of the fact that container freight volumes took a dive in the second quarter.

 

Maersk Line won price war

Broker and analyst agency Clarksons Platou noted in a comment recently that Maersk Line has won the price war with reclaimed market shares as the carrier has aggressively lowered its prices to take back said market shares.

“Our reading is that Maersk Line did win the price war, as they aggressively cut prices to recapture market share and is now in a much better footing with utilization back to “normal”.”

Maersk Line’s result went down to USD 507 million from USD 547 million in the second quarter 2014.

 

Maersk sends a signal

“We have performed slight adjustments to our targets for Maersk Line, somewhat a result of the lessons from the first quarter, in which we were pressured by price competition or opted not to enter a price war. As such, we’ve said that we want to grow at least in line with the market. The purpose of this statement is to send a signal that we plan to maintain our position as industry leader. If anyone should have any other ideas, we’d like to emphasize this fact,” said Maersk Group CEO Nils Smedegaard Andersen following publication of the Group’s interim report in August.

Maersk Line lost market shares in the first quarter 2015, when freight rates dipped 1.6 percent – a situation that according to numerous analysts contributed further to the extremely low rate level in the industry and the carrier’s attempts at regaining lost market shares.

The carrier maintains its target of earning at least five percent points more, measured by revenue, than the industry average.

“Learning from the volatility in the market, we’re now setting a flexible profit target for Maersk Line, of 8.5 to 12 percent. We have no doubts that we’ve also made more than 10 percent in the second quarter in spite of the pressured freight rates. But we’re also hereby indicating that this is a volatile industry, so we’re giving ourselves a range of 8.5 to 12 percent,” says Nils Smedegaard Andersen.

As such, the Maersk Group Chief Executive also sends a clear signal to the industry that the carrier is prepared to lower the Group’s set 10 percent ROIC target for the various business units including Maersk Line if that is the price to pay for maintaining its global 15 percent market share and Maersk Line’s position as the world’s largest container carrier.

Maersk estimates that global demand in the container industry has increased 1-2 percent in the second quarter this year compared to the same period last year, primarily due to weak European imports.

 

Transient price pressure

Maersk Line’s unit costs decreased 13.1 percent in the quarter, due to sliding bunker prices and a strengthening dollar.

Andersen does not believe that the currently and historically strong pressure on the freight rates represents a long-term trend:

“We have in the first half of the year seen the launch of two new major alliances (2M and Ocean Three). They have phased in ships, and so have we. We’ve wound up with more capacity than has historically been the case, while volumes have also dropped. This is a cocktail that will often put pressure on the prices. I think this will gradually normalize again, that capacity will adapt to the demand, and I actually see this as a transient development.”

Maersk Line´s nominal fleet capacity grew five percent in the second quarter, an 11.3 percent increase from the same period 2014. In comparison, the global container fleet has grown eight percent compared the second quarter 2014. 

Copyright 2017 Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.