Maersk Line, the world’s biggest container shipping company, believes that 2014 will continue to be a tough year for the industry. In an interview with The Hindu, Franck Dedenis, Managing Director, Maersk Line India cluster, points out that though the global shipping industry is passing through a critical phase, the company’s shipping line is doing well due to a carefully crafted strategy. Mr Dedenis, a French national, says his company has seen stronger growth for India in south trade zones rather than the usual European and North American trade. Edited excerpts:
How has the global recession impacted the shipping industry?
The market has not grown as expected because it is affected by recession in the U.S. and Europe since 2009, which was a terrible year. Since 2009, volumes and demand have decreased quite substantially. Even though certain economies have difficulties this year, overall, we expect the trade to grow two to three per cent. It is not negative growth as such.
We can see that emerging markets are growing stronger than the other markets. There are two kinds of impact—lower growth, which has impacted supply and demand of the services, and second is where the cargo is coming from and going to.
How has Maersk Line been affected?
Of course, being the biggest, we are as affected as other players in the industry. But the question is how you respond to the trends. The results of the response make the difference.
We have concentrated, basically, on four areas. We have optimised our network by rationalising our home vessels in partnership with our shipping lines and by selecting which trade we want to grow. There is lot of focus on the costs. The market is what the market is; you have to give cost effective and competitive rates if you still want to play the game. And that is what we are doing. The other one is meeting the demands of customers. They demand proximity, accessibility, availability. Reliability also plays a big part in it.
How much of your business is eroding away though?
We have had a lot of distortions. What is important is to get a certain rate of return from the capital investment. If we look at our performance over the years, we have been doing better than the rest of the industry. But the return on investment is still very low and that is why we are very careful of all the actions we are taking.
How bad is the scenario in the shipping industry? Many companies have gone bankrupt.
The shipping lines have lost a massive amount of money in the year 2009, 2011 and 2012 as well. And if you look at the first part of 2013, most shipping companies have also lost money. In the last four years, the industry has lost a lot of money leading to a few companies going bankrupt or facing cash flow issues. They are not being able to pay vendors or employees or they have stopped investing. Fortunately, we are not in that position. We need to grow with the market but not at any cost.
What is the current trend? You said there will be only 2 to 3 per cent growth this year?
That is our expectation. By the end of this year, we see some better signs in the U.S, but in Europe, though Germany and France have done a little better in the last quarter, in terms of GDP growth it is still fragile. And we expect 2014 also to be a bit fragile. We have certain capacity coming in and as an industry we have to manage that capacity, because we don’t expect the growth in 2014 to be in the double digits, which the industry has been used to many years before 2008. The days of double digit growth have gone. The base is so wide now and the global economy is not doing so well.
Has there been a shift in cargo movement over the years?
The main trade remains Asia-Europe and back. Then Trans-Pacific, that is Asia to the U.S. Now the local economies have developed and all those markets have grown in terms of consumption. Therefore, it also means that the import/export has grown. So the proportion of the emerging markets, whether it is Latin America, Africa, Asia including India, is becoming more and more important. The South- North trade is becoming important and also the South-South trades. For instance, the trade between Africa and India is growing and between South America and Africa and South America and Asia are growing big time. Therefore, the trade in north and south are both growing.
This brings us to India cluster. How is this market doing?
There has been a difference between the last four to five years and this year. Till 2012, the market was growing very strongly. In 2013 there is clearly a decrease in growth. In the first six months, exports (containerised) have grown by 4 to 5 per cent and imports were stagnant. So, from the containerisation point of view, the exports are growing while the imports are flat. So it is good for the trade balance for India. In terms of market trends, it is quite busy. We are looking at 2 to 3 per cent growth overall including exports and imports. But there is nothing to compare with the previous years. So, let’s see how it goes. We feel that by the end of this year, we will have exports growth of about 4 to 5 per cent and flat imports. There is good monsoon, and this is important for Indian commodities that you export. Also, let’s see how the rupee goes, it impacts the exports and imports directly. We have seen a stronger growth for India in south trade zones rather than usual European and North American trade.
Maersk Line currently calls 13 ports in India, how many can be added?
In shipping, the more ports you go, the more costs you have. There has to be economies of scale to call a new port. If you can do it directly without going through many stops, then your logistic cost will go down. And it is good for the final consumer. Today, we are well covered all over the country. This year we have opened two new ports, one being Krishnapatnam. There is no need to open more ports for more business. What we need is better and bigger ports that can take bigger ships, say 8000 TEU capacity, in India.
How much does the India cluster contribute to Maersk Line’s top and bottom-line?
Maersk India is among the top five biggest clusters of the company. We have 55 clusters and among that India comes in top five. So, we are committed to this market.
What is your investment plan for India?
We mainly invest in ships and then in people and systems. In ports, there is investment from A.P.M, which is part of our group. We are investing big time in India because we are calling 13 ports. To put the investment in prospective, one vessel costs $140 million and a service from here to Europe requires nine or 10 vessels and then we need to get containers on board. So with all their costs combined we are talking about a massive amount.
Now that the ports are being allowed to fix their own tariff, will your cost go up?
It is a bit too early to answer your question. There is a potential risk on the short-term. But in the long run if this is played well, it will lead to bigger and more efficient ports. And the customers will be willing to pay if they gain efficiencies. If we speed up the process of exports, they are willing to pay more. We believe that it is right thing, provided there is more clarity on it.