Sea freight rates to fall long term

Erosion of freight rates in the global container shipping trades is likely to continue for the foreseeable future, Maersk Line chief executive Søren Skou is predicting, leaving ocean carriers to find other ways of returning to profitability.

Maersk Line is one of the few in the industry to have produced respectable second quarter results, helped by unexpectedly good volumes in the Asia-Europe trades, which helped to stabilise average freight rates.

But Maersk Line’s net operating profit of $547m and annualised return on invested capital of 10.8% was far more a reflection of cost-cutting initiatives than higher revenue, with Mr Skou revealing that Maersk’s strategy excludes any assumption of a long-term freight rate recovery.

“When it comes to pricing, we do not subscribe to the view that freight rates will get better in the industry — all the evidence points to declining rates,” Mr Skou said in a telephone interview.

Price drop

On average over the past 10 years, prices have been falling by between 2% and 4% a year, a trend that, in Maersk’s opinion, is unlikely to be reversed.

Freight rates may go up in the short term for particular reasons such as inventory replenishment, as occurred in the second quarter, which pushed up utilisation levels, but such rallies are likely to be temporary.