Maersk Rates Increase

Maersk Line states that it will implement a general rate increase from India to Latin America starting on the first of February, 2013. The increase is scheduled for both 40-foot containers and 20-foot containers. The 40-foot containers have been slated to rise in price by $400 while the 20-foot containers are set to rise by $200 per engagement. Maersk claims that this increase is a means of dealing with rising prices of fuel. Maersk has also said that other routes will be facing rate increases in the future. Already, the Asia-Europe route is under heavy scrutiny, since A.P. Moller-Maersk states that at the current rates, they are not making money and to make the route profitable, rake hikes will be needed and are probably already under consideration. In addition to the rate hikes, Maersk has also announced that the effective dates of its congestion charges to the US have been moved to a later date in February (depending on the location), in order to deal with a possible strike by the International Longshoremen’s Association. This has come because of a recent break in negotiation talks in the New York- New Jersey region which could lead to massive strikes and could hurt Maersk’s commercial viability if not prepared for. Weak demand and strong supply have been cutting steadily into the economic returns from shipping and as a result of this, Maersk and other shipping lines have found their business has been steadily declining. The fact that bunker fuel costs have dropped and spot rates have raised are not enough to stave off the current glut of capacity that the industry now faces. The increase in carrying capacity means that even though the fuel costs and spot rates are lower, the prices the lines charge will be reduced because of the competition they face. Maersk will need to consolidate before the close of the quarter in order to make sure they see profits later down in the year. The increase in shipping capacity along with the raise in their rates may make them an unattractive option for shipping to areas like Asia-Europe and the United States. Although Maersk is aiming to make the Asia-Europe route more profitable, they should realize that there is a fine balance between viability and feasibility, and it would not do well to step over it, lest the end result hurt the line as a whole.