Analyst: Maersk’s control of ports will give it “pricing power”
Analyst: Maersk’s control of ports will give it “pricing power”
Equity analyst Handelsbanken said in a bullish investment report that A.P. Moller-Maersk’s control of port capacity at a time of congestion problems, together with other management techniques, will allow its container shipping arm Maersk Sealand to gain “pricing power.”
“Maersk Sealand will create a two-tier container market,” the analysts said, putting a “buy” recommendation on the stock of A.P. Moller-Maersk.
“We believe a small group of container carriers including Maersk Sealand are going through a historical transition phase from being price takers to becoming price leaders,” the analyst said.
Instead of focusing on ocean transportation only, A.P. Moller-Maersk has spent more than 10 years gaining control over container ports.
“We believe this will prove valuable, as most competitors struggle to overcome congestion,” Handelsbanken said.
The Danish group’s APM Terminals arm has container handling operations at more than 35 terminals worldwide. In 1999, it acquired the U.S. terminals and terminal leases of Sea-Land Service as well as its liner network and ships.
Handelsbanken categorizes container ports as “important entry barriers,” saying Maersk’s investment in ports “could open new doors and give the company a lot more pricing power than it has today.”
“The secret lies in client segmentation and focus on high yield cargo,” it added.
It is known that many of A.P. Moller-Maersk’s competitors have also increased their activities in the container port business, notably NYK Line, P&O Nedlloyd, Mediterranean Shipping Co., COSCO, CMA CGM, OOCL and China Shipping. However, APM Terminals and P&O are the largest carrier-affiliated container port operators.
In a related development, Handelsbanken suggested there are “signs of a prolonged upward cycle” in the container industry. The ratio between growth in world GDP and world container traffic growth “seems to be expanding along with the increased degree of outsourcing and specialization.” Meanwhile, longer queues at many of the large container ports and slower turntime for vessels in port mean that the world “will need more vessels to move the same amount of goods,” it commented. Alternative routing by carriers to more distant ports also employs more capacity. The analyst also said China’s growing role on the world trade scene has increased the number of long-haul routes, increasing total TEU-miles, and tying up more ships.