SINGAPORE (Reuters) - Global maritime firms are starting to take container ships out of operation as rising fuel prices and falling freight rates erode profits, the head of industry leader Maersk Line (MAERSKb.CO) said on Thursday.
Around 5 percent of the global container capacity, or 800,000 twenty-foot equivalent units (TEUs), are in lay up, an industry term for taking vessels out of action, said Soren Skou at Maersk’s Singapore offices on his first overseas trip as CEO.
That figure could soon increase to more than 1 million TEUs, a level not seen since 2009 when trade was severely hit by the financial crisis, he added.
Firms only usually take a vessel out of service when it is no longer profitable to operate on a daily basis. It is a last-resort measure but many shipping companies are struggling for a fourth year, hit by overcapacity, weak demand for cargo, high bunker fuel prices and depressed freight rates.
“We do not have any lay up ships at this point. But we are certainly not ruling out laying up ships over the summer if the market is growing less than what we expected,” Skou told reporters.
Last year, overall freight rates were 8 percent lower than 2010 while bunker prices rose some 35 percent, Maersk said.
The world’s largest container firm, a unit of Danish shipping and oil group A.P. Moller-Maersk, last month reported a net loss of 2.88 billion Danish crowns ($504.59 million) in 2011, and has forecast more losses in 2012.
Skou, who became CEO two months ago, reiterated the firm’s main mission was to restore profitability and reduce market overcapacity by adjusting its fleet and reducing the speed of vessels.
“As an industry, we have been investing ahead of demand. As demand has been slowing down, we do expect to have a situation with excess capacity over the coming years,” he said.
“We have to invest less. We have to stop trying to outgrow each other, building bigger and bigger ships.”
The firm has already removed 9.5 percent of its Asia-Europe capacity and has decided against ordering ten more Triple-E vessels, the world’s largest container ships, to add to its current fleet of 20. Despite the cuts, Maersk Line maintains its dominant 15.5 percent share of the container market.
Maersk has the flexibility to reduce its global capacity by a further 9 percent as the contracts for one-fifth of its chartered vessels are due to expire this year, Skou said.
Maersk Line forecast container demand to slow to between 5 and 8 percent in the next few years compared to an average of 10 to 11 percent over the past 25 years as Western economies weaken, manufacturing activity in Asia slows, and products become smaller in size.
Skou said the company does not have any acquisition plans and does not believe there will be much more consolidation in the industry in the near term.
($1=5.7076 Danish crowns)
Editing by Miral Fahmy