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Maersk Says Container Market To Shrink More Than 10%

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Maersk says container market to shrink more than 10%

A.P. Moeller-Maersk, owner of the world's largest container shipper, said cargo volumes may drop more than 10 percent this year and show no growth in 2010 as the industry suffers a "completely unprecedented" decline.

"We will have a substantial loss this year and next year will be equally difficult," Eivind Kolding, chief executive officer of the Copenhagen-based company's Maersk Line container unit, said Monday in an interview. "We have been quite disappointed by the market development in April and May."

Maersk fell as much as 5.7 percent in Danish trading after Kolding said that a 10.3 percent decline in annual container numbers forecast by Drewry Shipping Consultants Ltd. is "a fair estimate" and that the drop may be even bigger after volumes tumbled 15 percent in the first five months. A "worrying" balance between supply and demand won't level out until 2015 and further job cuts will be needed following a 24 percent reduction in the past 18 months, he said.

"There's a long way to go before Maersk Line records a satisfactory profit," said Dan Togo Jensen, an analyst at Handelsbanken in Copenhagen with a "reduce" recommendation on the stock. "We estimate that Maersk's volumes will drop by between nine and 10 percent this year."

The container industry, which transports manufactured goods by sea, is in its first year of contraction as consumers in Western economies rein in spending. The market has expanded by more than 10 percent most years since containerization went global in the 1970s. The worst year until now was 1982, with 4.6 percent growth, according to Drewry, which three months ago had predicting only a 5.3 percent contraction in volumes.

Maersk was trading down 1,400 kroner, or 4.5 percent, at 30,000 kroner as of 12:44 p.m. in Copenhagen. The shares have tumbled 48 percent in the past 12 months, causing the company to relinquish the title of Denmark's most valuable business to insulin maker Novo Nordisk.

Freight prices have also dropped as shippers compete for a declining number of contracts and new vessels ordered during the boom period enter the market. Rates are down to 1990 levels, Kolding said, pushing operating margins to "record lows."

"Getting lower down from this point will actually mean you have to pay the customer to take his business," the executive said. "There is a floor and we are quite close to that now."

London-based Drewry predicts that global container-market capacity will grow 8 percent this year and 10 percent in 2010. The industry will lose a combined $20 billion before interest and tax, compared with a $5 billion profit in 2008, it says.

Maersk Line, which operates 470 vessels and owns 1.9 million containers, lost $559 million in the first quarter of this year as its rates dropped 24 percent from a year earlier and volumes fell 14 percent.

The shipper will seek to cope with the decline by cutting costs and improving customer relations to hold on to its 15 percent global market share, said Kolding, 49. It won't try to take orders from competitors, he said.

"If you start going for market share in a declining market, it will only create an even stronger downward spiral," Kolding said. "At this level, we all lose substantially."

Parent A.P. Moeller-Maersk, Denmark's largest company by sales, also owns the Nordic region's second-largest oil and gas explorer, a 20 percent stake in Denmark's largest bank, Danske Bank A/S, and a tanker unit. The group said May 12 it may have a net loss this year, the first since World War II, because of the container unit.

The container industry will consolidate over coming years once trade picks up, Kolding said, adding that he has no regrets over Maersk's two biggest acquisitions, the 1999 purchase of Sea-Land Service Inc. and the 2005 takeover of Royal P&O Nedlloyd NV.

"There are further opportunities to get your costs down if you grow in size," he said, adding Maersk isn't seeking further acquisitions "at this point."

Closely held Mediterranean Shipping Co., Maersk Line's biggest competitor, has an 11.4 percent share of the global container market, while CMA CGM SA controls 7.4 percent, according to AXS Alphaliner. The remaining top 27 companies have market shares of between 0.3 percent and 4.6 percent.

Swire Shipping will fire 200 people, about 40 percent of its workforce, Lloyd's List reported yesterday, citing General Manager Toby Smith. The container line is also cutting routes in response to weaker U.S. and European demand.

Maersk Line, which transports about 20 percent of China's container goods, has reduced its labor force to 17,500 people from 23,000 at the beginning of 2008 and will cut more jobs, Kolding said, declining to give a specific number.

"We have some further opportunity for rationalization," he said.

The global economy has come to a screeching halt. Nobody is buying stuff, nobody is producing stuff.

Very worrying to see Maersk and the other big boys cutting back, and forecasting more losses. Very worrying indeed.

Edited by cashinmattress

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Maersk says container market to shrink more than 10%

The global economy has come to a screeching halt. Nobody is buying stuff, nobody is producing stuff.

Very worrying to see Maersk and the other big boys cutting back, and forecasting more losses. Very worrying indeed.

I'm an HGV driver and we're in the exact same business- moving stuff about, including those containers, or "boxes" as they are always referred to- and we are getting laid off left right and centre at the mo.

Take a look at this, from last October.....

Volvo truck sales plunge 99.7%

Evening Standard

24 October 2008, 2:19pm

The depth of the recession was revealed today as truckmaker Volvo admitted demand across the Continent has crashed by 99.7% as it took orders for just 115 new lorries in the last three months.

That compares to orders totalling 41,970 in the third quarter of 2007. Global orders for Volvo slumped 55% in the last three months while rival Scania said its western Europe truck orders collapsed by 69%.

Source, http://www.thisismoney.co.uk/markets/artic...mp;in_page_id=3

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