Threat of price war clouds horizon for Maersk shipping business
COPENHAGEN (Reuters) – A.P. Moller-Maersk has been fortified by the $7.5-billion sale of its oil and gas business to France's Total, but the company's main sea freight business faces the threat of a new price war in a consolidating industry.
Maersk, the world's biggest container shipping company, has shifted its focus this year from preserving market share to higher margins, a strategy that was helped by a recovery in freight rates.
Chief Executive Soren Skou told Reuters that the company's second quarter results last week "were driven by higher freight rates alone" and that underlying industry fundamentals were their best since 2010.
But competitors including Ocean Alliance – a newly created partnership between France's CMA CGM, China's Cosco, Hong Kong's OOCL and Taiwan's Evergreen – will this year launch a string of ultra-large vessels and will have little choice but to chase a bigger slice of the market.
"This could force Maersk to become defensive and defend its market share," said Lars Jensen, director at Copenhagen-based consultancy SeaIntelligence.
"If you don't want to enter a price war, you have to accept losing market share."
The industry last year emerged from a fierce price war over market share that saw freight rates drop, hurting container line profitability as too many ships chased too little business.
But there are already signs of price skirmishes on the trans-Pacific route, which could spread to other regions.
Maersk's focus on margins comes after splashing out $4 billion in December to buy smaller German rival Hamburg Sud, strengthening its presence in global trade and Latin America and increasing global market share to 18.6 percent from 15.7 percent.
Although the sale of the oil and gas business has allowed Maersk to shed any conglomerate discount in the way investors value its shares, it also means it can no longer use oil as a hedge against a downturn in the container market.