After running aground in the wake of the global economic crisis of 2008 and 2009, it seemed like a rebound for global ocean carriers was in the offing.  Container volumes were going up, and the rates they could charge per TEU were higher as well.

Maybe, just maybe, the world had avoided a double-dip recession, shipping executives, analysts, and others said.

Then came spring 2011, and suddenly things didn’t seem quite so rosy.

Whether it was the recurrent fiscal crisis in Europe, rioting and regime change on the streets of the Middle East, or an earthquake, tsunami, and nuclear disaster in Japan, international trade took the hit, with flagging consumer confidence causing shippers to scale back their expectations.

Yet despite waves of uncertainty fed by the erratic economic signals that accompanied these events, leading ocean carriers continue to plan for future growth while aggressively adopting strategies to keep their bows above water and themselves head and shoulders above the competition.

And none has done so more during the past year than Maersk Line, says Niklas Bengtsson, director of IHS Fairplay’s Maritime Research and Consultancy division.

Indeed, the company, a unit of Danish Shipping and oil giant A.P. Moller-Maersk, already operates the largest container ship on the sea (with a capacity of 14,000 20-foot equivalent unit (TEU) containers) and has ordered 20 of the new Triple-E class vessels from the South Korea’s Daewoo Shipbuilding & Marine Engineering Co.

Currently, the industry standard is vessels that carry about 13,500 TEUs. The new Triple-Es have a capacity of 18,000 TEUs.

Maersk expects to take delivery of the first of these new ships in July 2013 and the last in mid-2015.

“What we see unfolding with Maersk is a quite aggressive effort to get to the lowest cost per transported TEU, and they’re doing it by using and ordering ever-larger ships,” Bengtsson says from his office in Gothenburg, Sweden.

At the same time, Maersk has taken steps to ratchet up the marketing of its services.

For instance, in September it launched a new daily service on the Asia to Northern Europe trade lane.

Called “Daily Maersk,” the company promises the new service will provide shippers a “daily cut-off at the same time, every day, seven days a week, and always with the exact same transportation time.”

To pull this off, Maersk has committed 70 vessels to operate between four ports in Asia (Ningbo, Shanghai, Yantian, and Tanjung Pelepas) and three European ports (Felixstowe, Rotterdam, and Bremehaven.)

Further, it says, it will load cargo as quickly as it can be carried from the production site to the dockside, eliminating the need for storage. On the other side of the trip, Maersk is promising to offer monetary compensation to any customer that doesn’t get its cargo by the agreed-upon date.

The service amounts, Maersk says in a written statement, “to a giant ocean conveyor belt for the world’s busiest trade lane” that will “change liner shipping forever.”

“In short, they are saying, ‘We are better than all of you other guys,’ which is not unusual, but they are also being very clear about saying to customers, ‘We are going to take your box to your preferred port and get it there on time, and our competitors will not,’” Bengtsson says.

He goes on to describe the new service as the clearest action any single shipping line has taken to deal with the new realities—and new uncertainties—of global trade.

“What you have is a shipping line that is cutting its costs significantly, while offering new services that will allow it not to lower its prices,” Bengtsson says.

“When it comes to the fate of the ocean carrier—any ocean carrier—it’s clear that the lowest cost position is the way to win this war,” he says.

Financial stability wins out over growth plans

Understandably, some in the shipping industry have criticized Maersk, saying that, by ordering giant ships at a time when consumer demand is weak, the line is potentially creating a glut of future capacity on the market.

The company responded at the recent Informa Maritimes Events conference. In a talk with attendees, Soren Anderson, Maersk’s VP of vessel management, said he believes the orders actually reflected a conservative position on the part of the company.

“We believe we are below the average of our competitors in growth over the next three years and below the market growth,” he says.

Anderson also says he didn’t believe Maersk’s orders would touch off a frenzy of behemoth-buying among the shipping line’s competitors, opining that “money is hard to come by.”

“I don’t see a new standard emerging,” he says of the big ships.

That sentiment was somewhat confirmed in an email to WT100from Lamont Petersen, VP for Transpacific WB Trade at Hyundai Merchant Marine in Irving, Texas.

“HMM has no concrete growth plans at this time in any trade,” Petersen says. “In fact, because of the economic downturn and its measurable impact on imports and world trade, we have actually removed capacity from the transpacific trade in the last month or so.

“Growth plans are uncertain and are taking a back seat right now to financial stability,” he adds.

Bengtsson says while Maersk, with its economies of scale, can be a daunting competitor, the biggest challenge confronting all ocean carriers is business sentiment.

“People believe the future will be black,” he says.

“Everyone was surprised by the hard volume meltdown in 2009, but the recovery was quite predictable,” he explains. “There is tonnage out there, but the reality is that as a result of the global financial crisis, we have lost two years of what had been anticipated to be a growth period in container volume.

“Given business sentiment, and the business climate overall, I would guess that we are now in for a tougher ride than we had experienced earlier in 2011,” he continues. “But that said, we have a lot more tonnage moving over the ocean than we had two years ago.”

Intra-Asia sees strongest growth

While the world’s largest ships will be dedicated to the long-haul Asia-Europe and Asia-U.S. trade routes, Bengtsson and other industry analysts see the biggest growth occurring in the intra-Asia market, where the effects of the financial crisis were not nearly as profound as they were in the west.

Also contributing to the growth in Intra-Asian container movement is the rise of Asian domestic markets and demand for finished goods for consumption.

“It’s no question that it’s clearly the region with the highest growth in the container trade, and it has the potential to continue to grow at a high rate for the foreseeable future,” Bengtsson says.

Equally excited about the region’s prospects is HSBC, the global financial firm, which used the occasion of second quarter market analysis to speak at length about the emergence of what it termed “The Southern Silk Road.”

According to Stephen King, HSBC’s chief economist, although the momentum of the economic rebound has ceased—with trade growth peaking during the winter—emerging markets remain a magnet for global capital “and are increasingly investing in each other with the prospect of more and more Asian-funded infrastructure projects in Latin America and parts of Africa.”

“As this new infrastructure comes on stream, so a new network of economic connections across the emerging world will be established,” he says.

King goes on to say that if a “soft-landing” of the economy could be achieved, “the stage is set for a sustained period of growth across the emerging world driven by new ‘south-south’ connections.”

“The result of all these changes could easily be a ten-fold increase in intra-emerging market trade in the first half of the 21st century,” he says.

Among those who have been busy in the region is Hapag-Lloyd, which started a new weekly service from China and Korea to Sri Lanka, India, and Pakistan, and with its partners in the Grand Alliance (Nippon Yusen Kaisha and the Orient Overseas Container Line), added a direct Vietnam call on its Asia to Europe loop, and re-launched a Japanese service as part of its Asia to U.S. west coast operation.

CMA CGM launched a new service between Asia, the Fiji Islands, and New Zealand, and Kawasaki Kisen Kaisha, Ltd., more widely known as the “K” Line, expanded its East India service in September with the introduction of a new Thailand-East India Express service that reduces the transit time between the two countries to eight days.

Bengtsson said that ports in South America are beginning to see similar activity.

For instance in May, CMA CGM upgraded its service linking Asia and the East Coast of Latin America.

Then in August, APL introduced a new service in collaboration with Hamburg Süd that links the South American west coast directly to Central America and also connects to its North American west coast services.

But for all this activity there are still some bastions of skepticism.

In a recent report, Credit Suisse found reason to question whether intra-Asian growth can remain resilient if the U.S. and Europe teeter into a full-blown recession in 2012.

In short, the Credit Suisse report argues that given the fact that manufacturing output is weakening due to slow order growth, the strength of intra-Asian trade has “probably” been oversold.

It contends that most of the activity in the region has been about an increase in trade with China, but that most of that trade is in components and raw materials rather than finished goods, and that means countries like Vietnam, Thailand, and Singapore are still heavily dependant on the U.S. and Europe to buy their manufactured products.

As a result, Credit Suisse says, “We doubt China can significantly insulate other non-Japan Asian economies from the U.S. and EU slowdown.”

Further, it says China’s domestic-driven growth and a potential policy boost will help some countries in Asia more than others. Among those most expected to stay strong are Hong Kong, Indonesia, Korea, and Malaysia.

Evidence of the fluidity of the intra-Asia trade can be seen in Malaysia International Shipping Corp. (MISC) Berhad’s recent changes to its East Asia-Middle East-India service, which dropped the East Asia string from its calls, and its Malaysia-East Asia service, which picked a few—but not all—of those calls up.

The move, reported by the China Shipping Group, has been described as a “transformation” undertaken as the Malaysian carrier “continues to struggle to maintain a profitable niche in the liner trades.”

The potential of the Southern Silk Road has inspired new interest in routes between Asia and Africa (a surge that could be valued as high as $1.5 trillion by 2020, according to some estimates), with Maersk, CMA CGM, The Grimaldi Group (ACL), and Deutsche Post AG all making moves to bolster their positions on those trade lanes.

“The growth figures for Africa are very impressive—in percentages,” Bengtsson says. “As far as real containers are concerned, however, Africa hasn’t been so impressive because container traffic to and from Africa was so low to begin with.

“From that perspective, Africa is not going to be the savior of the global ocean carrier market in the short term, and I would say its having a significant impact on global shipping and global shipping patterns is a long way off.”

Fuzzy future forecast

Last July, Alphaliner, the global information platform serving the container shipping industry, reported that the top 20 ocean container carriers had boosted their combined world market share to a record 84 percent.

However, because no single carrier controls more than 20 percent of the market, the industry remains “highly competitive,” Alphaliner says.

At the time of its report, the three top carriers in the world were Maersk, the Mediterranean Shipping Company, and CMA CGM.

Bengtsson says accelerating competitive pressures amongst members of the Top 20 during and after the financial crisis broke up many shipping partnerships and as a result, there’s currently less cooperation between shipping lines than has existed in the past.

“But that leaves room for future consolidation,” the analyst says.

 “Given the poor performance all of them had in 2009, if the financial markets had gotten anywhere near back to normal, we would have seen that activity on a grand scale then,” he says.

“Since the financial markets were essentially nonexistent at that point, they [the shipping lines] didn’t have any money for anything.

“So many shipping lines got an extended lease on life, but I predict there will be fewer companies down the line. Consolidation is bound to happen, one way or another,” he continues.

“I mean, you can clearly see that the environment is such that companies will actually go bust and other companies will step in and pick up the pieces.”

In light of such comments, one might suspect that Bengtsson sees the ocean carrier sector as being in a fairly precarious position right now. He insists, however, that the overall picture is much more positive in 2011 than it was just two years ago.

“I think—and as I say this, I’m using the European market as an example—the latest round of bad economic news affected international trade much more quickly than when the financial crisis happened,” he says. “Last time around, even though container volumes clearly fell, it actually took awhile for that declining volume to work its way through the supply chain and impact ocean carriers.

“Today, I think trade flows are so tight—because no one wants to get caught with excess inventory—so the shocks ripple through the supply chain much faster,” Bengtsson continues. “That said, I don’t think container volumes will come down as dramatically as they did in 2009 if the economic news doesn’t immediately turn around.

“This time around, the financial markets are working, and there’s a sense that governments won’t let the big banks fail, so you don’t have that sense of turmoil that accompanied the last meltdown,” he says. “But it’s really very much about sentiment out there now, and as a result, there’s very little that we really know for sure. It’s very hard to forecast anything right now.”

Despite such reservations in some quarters of the industry, there are, of course, those staking a much more bullish position on the future. One, as has already been made clear, is Maersk; another is the Neptune Orient Lines (NOL) Group.

“We’re confident in the future of global trade,” says a company spokesman in an email to WT100. “In 2011, to prepare for long-term growth, we have invested in new vessels, terminals, and container equipment. These investments will make us more efficient and improve our cost structure. They will allow us to grow with the market as well as replace outdated assets.”

So what kind of tea leaves are the ocean carriers reading in such an environment?

“I think the lowest cost position is what most people are focusing on right now,” Bengtsson says. “So what you see is those that have the money actively going out and buying bigger ships that are cheaper to operate, or you see them employing strategies, like slow-steaming, to fine-tune their fuel consumption and bring down costs that way.”

“We’re into an interesting period,” he continues. “Just six months ago people thought we were pretty much out of the economic doldrums, but, instead, the travails of the markets and banks and financing have come back with a vengeance.”

Being in the EU, Bengtsson is particularly mindful of the economic hardships many European countries continue to experience.

“It may take awhile to sort all that out, so I think what we will likely see is a shallower recession lasting longer than the last crisis,” he says. “In terms of the larger economy, that will mean slow growth and slow recovery markets will continue for the next few years at least, and that’s in the cards for the shipping lines as well.”

So there’s no chance of an unexpected turnaround, Bengtsson was asked.

“Well, hope is the last thing that people abandon, isn’t it?” he says. wt