Container shipping giant Maersk Line's decision to propose a general rate increase of US$1,500 per container at the start of 2013, came as a shock to many in the international business community. Ten months later, many who depend upon container services are fearing a further increase might be imminent, and much like the rate rise in January 2013; ultimately they will be unable to refuse it.
The fact is, although Maersk Line has seen its transport volumes in some trade markets fall considerably, the higher charges it managed to convince shipping clients to agree to, pushed up the company's returns.
"Maersk Line has lost significant volume in 2013 but will overall generate higher profits from the segment, so we intend to grow with the market in 2014 but have no intention of pricing into loss-making territory,"- Maerks Line's Global Head of Reefer and Specialised Cargo.
Industry analysts realize that although shipping companies may hope for a rise in cargo rates, ultimately it is the market that will determine short-term pricing. It would seem that since January 2013, most shipping customers have simply accepted that they must pay more to ensure positive investments in the industry and to receive good quality service. Providing this to clients is the only way that shipping companies like Maersk Line, can remain competitive inside their market segment. However, in doing so, companies cannot be expected to sacrifice themselves and service loss-making markets; nor make sizable investments if they are unable to pay for the cost of capital.
All things considered, further rate increases remain a distinct possibility. According to Maersk Line, "If you look at industry returns they remain negative and well below the cost of capital. There are principally only two levers: either reduce costs or increase the top line. We still believe that reefer markets [for example] are under-priced on a global level."