As a result of factors such as declined volume, excessive capacity, high oil prices, and the increase in number of super large container ships being delivered, the ocean container shipping companies are facing an unfavorable situation. To maintain profitability in 2013, the Asia-Europe routes will continue to be a top priority in the strategic planning of the shipping companies.

The Asia-Europe line is always supporting marine companies.

The affects of the European debt crisis on the market

The first half of 2012, although facing an adverse market, shipping companies were determined to decrease capacity. Many companies gained a profitable turnaround after successfully raising the freight pricing several times.

However, in 2013, methods like successfully reversing the downturn of the freight pricing since the second half of last year need to be followed.

Merchandise purchasing has been reduced by the cash-strapped European consumers around Asia, especially China. The declining trend of the increasing of freight pricing has been aggravated due to the low demand during peak season.

The future market depends largely on the developments of the European debt crisis. The current difference in economic state that has formed in members of the European market has resulted in Nordic shipments being in a far better situation than the Mediterranean region, due to Spain and Italy being trapped in the plight of the recession and falling deeper than those in other countries.

The withdrawal of numerous freights to accommodate the Christmas and Chinese New Year which were expected to be a period of decline resulted in a good start in 2013 for top shipping companies. As an example, during January 9th to February 15th seven freights were withdrawn by the great alliance of six shipping companies. The industry leader Maersk is also slowing the speed of its AE1 route.

These initiatives were originally designed to provide support for the shipping companies’ price increasing plan, but that did not prevent the drop in freight rates in Asia and Europe. Only three weeks after the increase from $500-$600 in November, the price fell by nearly 30%. Furthermore the first quarter is traditionally a quiet period so the declines could continue.

The most fundamental strategy is for the shipping companies to further decrease capacity. It is estimated that the Asia-Europe line has 15% excessive capacity. The excessive capacity could become even greater if exports from Asia to the euro zone continue to maintain a double-digit decline.

Shipping Giants Maersk, Mediterranean Shipping and CMA CGM have taken the lead to adjust the supply and demand, but with little success. In October last year, the market share of those three in the Asia-Europe line had dropped from 53% at the peak period in April to 46%, however this didn’t stop the decline of the freight price.

The biggest question is whether they are ready to continue to reduce supply on orders to support freight prices, or at least hang on to the rebound of the second quarter as expected, and more importantly whether they are willing risk losing market share by providing this opportunity for their 18 competitors in Asia and Europe to prey on.

So far the three largest shipping companies are making every effort to prevent a repeat of the pricing collapse in 2011. After receiving the first three custom-made 16000TEU vessels and operating them on the Asia-Europe routes, CGM has three 11000TEU boats transferred to the Pacific route. Mediterranean Shipping appointed vessels that carry a million containers from the Asia-Europe line to join the Asia / North America line; in addition they have also idled one of their 13000TEU vessels.

Market leader to increase profits through cost reductions

With the spotlight focused on Maersk, the gains and losses of this company largely reflect on the whole Asia-Europe line. As statistic shows, this route accounted for 24% of the company’s total volume in the first 9 months of 2012, even though there was a drop in 15% in westbound shipments in the third quarter. It seems that Maersk will also be more focused on the Asia-Europe line. It is expected that four of the upcoming order of 18000TEU ships will be assigned to the Asia-Europe line.

These giant ships will undoubtedly reduce operational cost, and pave the way for the realization of the long-term profitability of the Asia-Europe line. Maersk states that the unit container fuel consumption of those new vessels is 35% lower than its competitor’s 13000TEU-14000TEU vessels. The cost of those unit containers compared with its own fleet "Emma” Maersk" (15500TEU) has also been reduced by 26%.

Furthermore, the market outlook is becoming more uncertain. Just four months after the signing of the first batch of ten 3E-level container ships, the second order for a batch of ten ships had been finalized. At that time, Maersk had expected that by 2015, the Asia-Europe line demand will grow at an annual rate of 5% -8% and that these new builds will enable the company to keep up with growth in demand and consolidate market share. But it now faces the problem of filling up the capacity of these vessels.

However, the company is surprisingly optimistic, with Maersk Group CEO Anshi Nian (Nils Andersen) stating, "The world economy is walking in the right direction, although very slowly and in the second half of 2013, we will see the European container trade pick up again”.

Reference: Ship Sale & Purchase