Maersk Line to cut Asia-Europe capacity by 9%

Reuters: Maersk Line, the world’s biggest container shipping company, will cut 9 percent of its vessel capacity in the Asia-Europe trade in a bid to combat low freight rates clipped by oversupply, Maersk said on Friday.

Maersk Line, a unit of Danish shipping and oil group A.P. Moller-Maersk, said the capacity reduction would be facilitated by a vessel-sharing agreement with French container shipping line CMA CGM.

“Oversupply of container vessels operating on the Asia-Europe trade lane has pushed Maersk Line’s container freight rates to unsustainably low levels,” the company said.

Shares in A.P. Moller-Maersk rose in brisk trade after the announcement and ended up 3.6 percent at 47,480 crowns, an eight-and-a-half-month high.

Analysts said the capacity cut, which was the first major move by Maersk Line’s new Chief Executive Soren Skou, could help the company push through ambitious rate increases in March.

Sydbank senior analyst Jacob Pedersen said it was a significant break with Maersk Line’s strategy throughout 2011 when it accepted lower rates in anticipation that rivals would withdraw capacity or go under.

“That has not happened yet to a large extent, but new alliances and therefore fewer players in the Asia-Europe trade nevertheless underpin hope for more balanced competition going forward,” Pedersen said, repeating an “overweight” recommendation on Maersk shares.

Pedersen said recently announced rate increases of $700-$900 per 20-foot container on Asia-Europe routes, together with capacity reductions, could significantly improve the shipping industry’s earning potential for 2012.

Maersk Line, which is expected to post losses for 2011 when A.P. Moller-Maersk presents annual results on Feb. 27, threw down a challenge to rivals last year by introducing a more streamlined and frequent service without a surcharge on its key Asia-Europe routes.

That move prompted some other boxship companies, including CMA CGM and Switzerland-based Mediterranean Shipping Co (MSC), to form new alliances to counteract Maersk.

“The reverse side of the coin is that deeply needed consolidation will now be postponed indefinitely to the detriment of the sector’s - and Maersk Line’s - long-term value creation,” Pedersen said.

Maersk referred to an Alphaliner forecast that Europe to Far East container traffic growth would slow to 1.5 percent in 2012 from an estimated 2.8 percent in 2011, due to a weakening economic outlook in Europe. “The industry container vessel fleet, by contrast, is set to grow by 8.3 percent in 2012.”

Maersk Line said it would make the adjustment without giving up any market share gained over the past two years.

“We will defend our market share position at any cost, while focusing on growing with the market and restoring profitability,” CEO Skou said.

Maersk Line said the cooperation with privately owned CMA CGM would help it cut the cost of serving West Mediterranean markets, enable it to deploy its own vessels to areas where they were most needed and pursue further slow-steaming, or sailing at lower-than-normal speeds.

Maersk Line said it would also consider additional steps to reduce capacity, including redelivery of time charter tonnage, lay-ups of vessels and slow-steaming.

Maersk reiterated that it would not exercise an option for the last 10 giant Triple-E class vessels out of a total of 30 it had initially contracted last year to have built by Daewoo Shipbuilding & Marine Engineering in Korea.