MAERSK CEO STUBKJAER PREDICTS END OF “DEPRESSED RATES” IN PACIFIC
MAERSK CEO STUBKJAER PREDICTS END OF “DEPRESSED RATES” IN PACIFIC
Transpacific freight rates will increase in the transpacific this year, as the industry realizes that it has formerly used incorrect supply and demand forecasts, according to Knud E. Stubkjaer, chief executive of Maersk Sealand.
Sharing his thoughts on the state of the shipping industry and developments in the Pacific trade at an industry gathering on Monday, the senior executive deplored what he regards as mistakes made by forecasters and the industry that led to lower eastbound Pacific freight rates in 2002.
“It's worth spending a few minutes on the reason why rates were depressed in 2002 at the same time as volume increased beyond the industry's capacity to handle this volume,” Stubkjaer said. “In a word, the analysts — and the industry — misread the 2002 supply/demand dynamics.”
He said that the size and duration of the market demand was largely underestimated, while vessel capacity available to service the high demand was vastly overestimated. “Not a good cocktail for any of the many stakeholders,” he said.
The eastbound transpacific container traffic increased by an unexpected 20 percent in 2002, to about 8.5 million TEUs, whereas forecasting organizations had predicted only a single-digit percentage.
Stubkjaer cited demand forecasts made by Drewry Shipping Consultants last year that proved too low. He said that vessel capacity forecasts have ignored operational factors that reduce their actual carrying capacity.
“During the summer of 2001, when most companies were evaluating their marketing and pricing strategies for 2002, industry experts, carriers and importers all projected modest growth for the trade,” he said. The low-growth forecasts were based primarily on the expectation of a slow economic recovery in the U.S., and were adjusted downward after the Sept. 11 terrorist attacks.
Stubkjaer said that many analysts then declared complete uncertainty about the event’s potential impact on the U.S. economy — an uncertainty that remained through most of the first quarter of 2002.
However, in the first quarter of 2002, the eastbound Pacific container traffic grew 9 percent over the first quarter of 2001.
“As importers and carriers were completing plans for cargo movement during the heavy peak season, all believed that the higher volume in the first quarter of 2002 was an anomaly attributable to a combination of one-time inventory replacement and the advancement of shipments made to avoid potential labor disruption on the U.S. West Coast,” Stubkjaer said.
It was not until July 2002 that carriers, importers and industry experts alike began to suggest that the strong volumes might not diminish until late October, he related.
It is known that the peak 2002 transpacific season was characterized by localized shortages of vessel capacity and the need to roll cargo to the next available ships, whereas forecasters had predicted substantial overcapacity.
There were small rate increases in the fourth quarter of 2002, but these were marginal compared to the rate reductions all carriers experienced in 2001 and early 2002, he added.
For the 2003 season now approaching, Stubkjaer predicted “stronger and sustained rates.” The market in the Pacific eastbound trade will need to support rate increases “of significant magnitude” to ensure services will continue to be available for the increasing volumes, he said.
The Transpacific Stabilization Agreement carriers, including Maersk Sealand, are planning to raise eastbound rates by $700 per 40-foot container for port-to-port moves and $900 for inland moves.
“The bellwether of international shipping is the transpacific trades,” Stubkjaer commented.
Maersk Sealand expects demand in 2003 to increase “with a growth rate over 2002 that is at least in line with the historical average growth for the trade – around 10 percent per year,” Stubkjaer said. China and Hong Kong will continue to lead the growth.
The Chinese economy is expected to continue to grow at a pace well ahead of the average for the trade this year.
Stubkjaer did not disclose his company’s forecasts of growth in vessel capacity this year.
“In my view, the non-compensatory rate levels seen over the past two years have not been justified by the real capacity of our industry and the demand for these products,” he added.
As major transpacific shippers start their annual round of service contract negotiations with ocean carriers, both sides are expecting rates to go up this year, according to industry sources. Most shippers will renew their service contracts effective May 1.
Ocean carriers are seen as having a stronger bargaining position in this year’s negotiations with shippers.
“The depressed freight rates cannot and will not continue,” said Stubkjaer, who is also a partner of the A.P. Moller group, the parent company of Maersk Sealand.
“Last year, estimated financial losses for Pacific carriers exceeded well over $1 billion and two carriers pulled out of the trade completely due to losses,” he stressed.
Stubkjaer was apparently referring to Trans-Pacific Lines and Senator Lines, which have withdrawn from the Pacific trade. Wallenius Wilhemsen has also stopped its transpacific container activities to focus on roll-on/roll-off cargo.
APL, another carrier that lost money last year, reported that its transpacific freight rates for 2002 were down 14 percent when compared to the previous year.