Cargo volumes moved in container ships are expected to grow 2%-4% this year, up from around 1.5%-2% in 2016 as the industry capitalizes on a revival in demand in the US, Europe, China and major oil exporting countries, a senior Maersk executive said.
“The economy in both Europe and US is picking up though it is not back to the heyday, there is a lot of talk of Chinese economy growing. The oil export-dependent economies in West Africa and South America will benefit for the increase in crude prices,” Group Representative Asia Pacific, Maersk Group, Rene Piil Pedersen, said at the Seatrade roundtable discussion in Singapore.
He said oil prices were a double-edged sword as they increased shipping lines’ costs but expressed optimism they could be reflected in freight rates.
“It is only when oil prices rise and fall very fast that they are difficult to pass on to the customers,” Pedersen said. Maersk’s fleet of container ships is less than eight years old compared with the global average of 12, he said. “For an energy efficient fleet, higher fuel prices are less of a problem.”
While the demand for container ships is rising, there is a large overall global program of new builds and “there is a big question of how that capacity will be managed,” he said.
Last year, there was a significant amount of recycling and scrapping of older ships, that kept the supply in check, he added.
The World Container Index assessed by Drewry Maritime Research, a composite of container freight rates on eight major routes to or from the US, Europe and Asia, fell almost 3% week on week to $1,350.61/40 feet container as of March 23. Nevertheless, the index is more than double what it was a year earlier.
“The increase compared with the previous year is from a very low base and we are not out of the woods yet,” Pedersen said.
The supply and demand for container ships is now more balanced but better capacity management will be required, Pedersen said. “Some consolidation in the container shipping sector has been announced but these are early days and it is yet to take effect,” he said.
He was referring to New Ocean Alliance that is expected to begin operations from Saturday and includes the Evergree Line, CMA CGM, Cosco China Shipping and Orient Overseas Container Line.
Another grouping, called The Alliance has brought together members including Hapag-Lloyd, Yang Ming, MOL, NYK Line, and ‘K’ Line.
Maersk and Mediterranean Shipping Co. or MSC, the two market leaders by deployed capacity, already have a 2M Alliance in place. The two companies also have a strategic cooperation agreement with Hyundai Merchant Marine or HMM.
One ramification of the bankruptcy of Hanjin Shipping last year is the wave of consolidation that followed in the container shipping industry. He said at one point of time around $14 billion worth of cargo was stranded at sea or ports due to the bankruptcy.
“If one has to survive, it has offer a global product. You can’t be a small fish in a big lake,” Pedersen said. “The consolidation is not huge, the top 20 container shipping companies have now become the top 12. There are still a lot of small players,” he said.
The next two years would be tricky because demand would increase but a lot of ships will hit the water, he warned.
Maersk alone will take delivery of nine 14,000 TEU and 11, 19,000 TEU new container ships this year, Pedersen said. The company has not placed any new orders so far this year.
Pedersen stressed that there was an increasing need to transform the containers business through digitalization.
“This is a huge opportunity for Maersk. Until around three years ago making a booking with us required a couple of hours, now it is in minutes and by next year we want to reduce it as low as five seconds,” he said.
A better cost structure around the containers, container ships, terminals and cranes could reduce the overall costs of handling cargoes, he added.
Pedersen cited the example of a case study Maersk did sometime ago, when tracking a cargo of flowers and avocados from East Africa to to Northern Europe revealed involvement of close to 200 sets of documentation or paperwork and engagement with 30 different entities.
“The future lies in using a much more transparent and efficient process to dealing with these entities called the block chain technology which will be seamless and save time and costs,” he said.
On the new global norms for sulfur emissions that will be implemented less than three years from now in 2020, Pedersen said the Maersk Group would be ready but was concerned over enforcement.
“The rules are clear, what is not clear is how different [geographical] jurisdictions will police it and may disrupt the level playing field,” he said, adding that if were to happen, those like Maersk who followed the rules might be at a disadvantage to others who did not.