Maersk boss cautions against fair-weather investments

Says Weaker players who seek short-term returns can undermine market, but are then more likely to disappear

CONTAINER shipping is braced for a difficult second quarter, but a temporary downturn could be helpful for the long-term health of the industry.

That is the view of the head of the world’s largest containership operator, who is unconcerned about a brief dip, but hopes it may be a wake-up call for some of the peripheral players.

AP Moller-Maersk chief executive Nils Andersen is critical of those lines that invest based on short-term market conditions without much certainty about whether they can deliver profits over the long term. In the meantime, such investments are likely to undermine the whole market.

So a bad quarter, like the one now being experienced by ocean carriers, should be a salutary lesson to such operators, in Andersen’s opinion, since “it is not a given that this is a market where everyone can make money”.

The fact that no carrier failed during the industry’s worst-ever recession, when combined losses spiralled to as much as $19bn in 2009, came as a surprise to many in the business. In retrospect, it is clear shipfinance banks propped up struggling owners and operators, while some governments also stood by to help if necessary. Hapag-Lloyd, which reported a first-quarter loss, sought support through state-backed loan guarantees at one stage, although the market turned before such aid was needed.

Maersk is one of the lines that thinks the industry needs to be more concentrated and has been at the forefront of rationalisation efforts over the years.

Andersen still expects further consolidation to occur, although not necessarily via mega-mergers. Rather, the gradual disappearance of weaker lines is more likely. He is convinced some smaller carriers would like to withdraw, if they can find a reasonable exit strategy.

That may not be so easy, since they might have the wrong kind of ships, 0r be asking too high a price — so it could be a drawn-out process, Andersen said, shortly after unveiling Maersk’s unexpectedly strong first-quarter results. The tipping point would come when weaker lines stop investing, “which they should do — you should not invest in a business where you cannot make money”.

A number of shipowners, including Maersk, were quick to return to the shipyards and start ordering new vessels very soon after the slump of 2009 ended.

But in an interview with Lloyd’s List, Mr Andersen said some businesses “get carried away and order new ships” based on very short-term perspectives.

Having access to much cheaper finance than the rest of the industry, Maersk Line will be able to operate and fill the 18,000 teu ships it ordered earlier this year without destroying the market, Andersen  predicted.

With demand forecast to increase at between 6%-8% annually over the coming years, Maersk’s goal is to expand in line with the market. “We have no intention of growing market share,” said Andersen.

As demand rises at a healthy rate, there will be no need for the price cutting that has occurred over the last few months — and which looks set to push some lines back into the red in the second quarter. Maersk “does not feel threatened in any way” by the current downturn, said Andersen. The group’s liner shipping activities are still expected to deliver a “satisfactory” full-year return as rates pick up during the latter half of 2011.

Danish authorities are looking into reports that AP Moller-Maersk’s head of investor relations may have given guidance to a Scandinavian bank about the group’s results during the quiet period shortly before first-quarter earnings were published this week.

However, no formal investigation has been launched, and neither have shares been suspended, with the company insisting there has been a misunderstanding and no confidential information was leaked. (Lloyd’s List)