Maersk Container Vessels Sailing Slower Than 1870s Clipper Ships

by Stuart Burns on November 20, 2012

Style:    Category: Commodities, Global Trade, Macroeconomics

maersk container ship

Source: globalsecurity.org

There are many commodities and firms that are used as bellwethers of national or global health, but one that is often consistently accurate as a measure of international trade is the container shipping industry.

How ironic, then, that faced with dire economic challenges, many lines, including A.P. Moeller-Maersk, are operating their vessels in “slow steaming” mode to conserve fuel (and hence costs) to such an extent that they are sailing more slowly on the Asia-to-Europe route than the great sailing clippers of the 1870s, such as the Cutty Sark.

Iron ore and coal comprise a great deal of the seaborne shipping market — get today’s prices here!

The industry was faced with similar cycles of boom and bust then as it is now, even if the cargoes have changed from tea and wool to electronics and clothing.

Looking at container freight rates from Asian markets to Europe and West-Coast US serves to illustrate the relative performance of the US and Europe — indeed, so sensitive is the measure that northern and southern Europe have diverged as the Mediterranean focussed debt crisis has worsened.

Rates from Asia to the US across the Pacific have looked firm as a pick-up in housing and relatively solid industrial production have supported demand.

Bloomberg reports the Transpacific Stabilization Agreement, a group for container lines operating on Asia-US routes, has set a guideline to raise rates by $800 per container box in annual contracts that takes effect around May 1, while Maersk, the world’s largest container line, in cooperation with other container lines, has agreed to seek a $400 per 40-foot box increase in Asia-to-West Coast US fees still this year.

Meanwhile, Asia-Europe rates have slumped since the end of June to an average $1,225 per 20-foot container, below what Bloomberg reports is break-even at $1,250 to $1,350/20-ft box. Southern Europe is even worse — rates have dropped 46 percent to $955 as the usually similar north and south Europe rates have diverged.

Demand of course is the reason. Most lines operate a similar number of services to north and south Europe, but with only Germany offering any consistent levels of demand, excess supply is forcing lines to fight for every scrap of business.

Rather tellingly, Maersk has publicly stated it will no longer be investing in its shipping business in preference to its other activities such as oil production, port operations and drilling rigs over the next five years.

Like the supertankers it operates, though such change comes slowly, Maersk will follow France’s CMA CGM, which has a world-record-breaking 16,000 TEU-equivalent vessel called the Marco Polo (on its maiden voyage from Asia to Europe this month), when the Danish line takes delivery of their even-larger 18,000 TEU vessel in 2013.

Such vessels ordered at the height of the market are adding more and more capacity to an industry awash with capacity. Rates haven’t yet dropped on the northern Europe route to the sub-$1,000 level of late last year, but only due to a fragile alliance among lines desperate to keep rates up this year.

If Germany falls into recession as expected in the fourth quarter, rates to northern Europe could follow, in which case no amount of slow sailing will stem the red ink among shipping lines dependent on that trade.

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