A worker watches as a Maersk Line container ship docks at the North Port Pier in Port Klang, Malaysia. [Photo /Bloomberg]

Container carrier to strengthen regional base to secure trade flows

BEIJING - Maersk Line, one of the world's largest container carriers by volume and market value, is planning to further combine intra-Asia imports with its global export network to strengthen its advantages in the region.

Tim Smith, the chief executive officer for the North Asia region of the company, said it is very much linked to China's increasing imports as the country usually buys in raw materials or partly processed goods from other parts of Asia, before assembling and sending them for export.

"I think we have to put more focus on the import market than we have done. If you look at our organization design, it is mostly focused on servicing the export business. We have to step up, for example the number of sales people we have looking into the import market," he told China Daily.

Smith said the company also needed to look very carefully at the rotation of vessels because most designs were produced to ensure better export connections to principal destinations.

"The port rotation should be different because the ports for imports are not necessarily the same as the main ports for exports," he said.

Boosted by regional free trade development and strong growth, the intra-Asia sector will become the new focal point of the shipping market, said Bronson Hsieh, vice-group chairman of Evergreen Group and chairman of Evergreen Marine Corporation.

In 2009, intra-Asia cargo volume decreased 2.6 percent year-on-year. During the first half of this year, cargo volume increased 16.9 percent from the same period last year. The performance of both periods outstrips the long-haul markets from Asia to the United States and Europe.

Smith said he was very surprised by how quickly the industry has picked up from the global economic crisis despite some major economies still facing uncertainties over recovery, but the golden time of shipping has already gone.

"I was wishing the horrible downturn was going to end this time last year. We were optimistic that things were going to improve. But I think we've been surprised by how fast it's come good," he said.

According to the World Trade Organization, global trade growth will increase 13.5 percent this year, the biggest year-on-year increase since 1950, following a faster-than-expected recovery in trade flows. In 2009, world trade declined by 12 percent, the biggest slump since World War II.

After an historic loss of $2.1 billion in 2009, Maersk Line witnessed a dramatic upturn to a profit of nearly $2.3 billion in the first nine months this year, contributed to by a 34 percent year-on-year increase in average freight rates and a 7 percent increase in transported volume.

"The situation in 2010 is a little bit better than the normal level," said Smith, a 25-year veteran of the shipping industry. He described the business situation in 2010 as "strange" following unpredictable growth patterns quarter-on-quarter.

The second quarter this year saw strong growth followed by unexpected average growth in the third quarter, and a slight decrease in the fourth quarter, which is unusual due to the annual expected year-end seasonal demand, he said.

But it's hard to predict whether the flourishing situation will continue next year. "The year 2011 will not necessarily be as good as this year as demand may slow," said Smith, adding the company needs to carefully monitor the demand and supply situation in order to react quickly.

He estimated a global demand growth of 8 percent next year compared with 2010, mainly driven by a continuous rise of freight demand in Asia, Latin America and Africa, but with more fluctuations month by month.

"Given the sophisticated global economic environment, cyclical turbulence will become more obvious, while volatility will grow more dramatically," said Wei Jiafu, president of China Ocean Shipping (Group) Company (COSCO Group), which describes itself as China's largest and the world's leading organization specializing in global shipping, modern logistics and ship building and repairing, at the World Shipping (China) Summit on Nov 9.

In addition to an unstable economic situation, increasing freight capacity would also affect freight rates negatively. "New deliveries and over-capacity are hurting the recovery of shipping," said Wei.

Smith predicted a 10 to 12 percent year-on-year capacity growth as more new ships are delivered to owners in 2011, but calculating how much of it would be deployed is a different matter.

"I think it (overcapacity) is manageable if the industry learns from what happened in 2009. I'm optimistic," he said.

Carriers will continue to practice slow steaming because of rising fuel prices despite the fact the toughest times are already far behind, said Smith, who added 5 to 8 percent of capacity was taken out of circulation during the downturn.

Smith said it is difficult to predict how much freight rates will increase in the future but, based on current levels, the company expects to see good profits ahead.

Although the crisis is already behind and the industry is back to a normal situation, the "normal" will be different in coming years, he said.

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Before the crisis, the industry witnessed an average annual demand increase of more than 10 percent. Globally, the average demand increase for containers was usually three times growth in gross domestic product. "But it will be more like 6 or 7 percent growth in the future," said Smith.

Another change in the market will be clients' increasing concern over clean and green transportation, according to Smith.

"This is a coming mega trend. The customers over a period of time will ask for us to be more environmentally friendly. They will maybe select the carriers more based on their environmental performance in the future. We want to prepare for it early."

Maersk Line vessels on September 7 officially began using low-sulfur fuel in their engines while at berth in Hong Kong, marking the first voluntary fuel-switch scheme in Asia.

Switching from bunker fuel, which is used in the high seas, to low-sulfur fuel will reduce Maersk Line's emissions of unhealthy sulphur oxides (SOx) and particles by at least 80 percent, said the company. It will come at an added cost of $1 million annually to Maersk Line.

"Shipping is very efficient in terms of cutting CO2 emissions compared with other means of transportation. But shipping's SOx emissions need to be dealt with," said Morten Engelstoft, chief operating officer at Maersk Line. He expects the voluntary initiative will inspire authorities to raise the regulatory bar.

For Tim Smith, the recovery brought not only benefits and new challenges, but also some disappointment as opportunities for consolidation within the industry dispersed.

"Our feeling (one year ago) was that when the crisis hit, probably some weak companies should have gone out of business, but that didn't happen. Now that the global economy is improving again, probably the opportunity for consolidation has been missed," he said, adding it would be a disappointment for the industry because it could become stronger and more stable after more consolidation.