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World's biggest container line ready to lose money to win market

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The chief executive officer of the world's largest container line says he's willing to lose money in the short term in exchange for longer-term market dominance.

[COPENHAGEN] The chief executive officer of the world's largest container line says he's willing to lose money in the short term in exchange for longer-term market dominance.

Maersk Line's decision to go for market share in an unprofitable third quarter might "seem strange," but "you need to consider the alternative," CEO Soren Skou said in a phone interview.

"The industry is consolidating and in such a situation you have to make sure you keep growing so you don't lose your market-leading advantage."

"In the long term, the winners in this business will be those with the lowest costs, and low costs are achieved through scale," said Mr Skou, who's also the CEO of Maersk Line's parent, Copenhagen-based AP Moller-Maersk A/S.

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"We want our market share to grow organically every year."

Maersk Line on Wednesday reported a third-quarter net operating loss after tax of US$116 million compared with a profit by the same measure of US$264 million a year earlier.

Plunging freight rates outweighed a decline in unit costs. The shipping line increased volumes by 11 per cent in a quarter that only saw market growth of one to two per cent.

The CEO said the 11 per cent growth rate "might have been a bit more than we planned," but the August collapse of Hanjin Shipping Co "gave us a lot of volume".

Maersk Line has about 15.5 per cent of the global container market, putting it ahead of Mediterranean Shipping Co's 13.4 per cent and CMA CGM SA's 10.4 per cent, according to Alphaliner.

"We're currently growing organically as fast as our biggest peers," Mr Skou said.

"Large mergers can change that, but measured organically, we have matched the biggest peers."

The company is the "Saudi Arabia of the container market," DNB Markets said in a note to clients Wednesday.

"The combination of strong volume growth but still low rates means we still believe Maersk Line will continue to use price to gain market share," DNB said.

Part of Maersk Line's new strategy, revealed in September, is to add to its growth through acquisitions. Mr Skou declined to comment on which specific targets management has identified.

"If we see the right opportunity, we will strike," he said.

"We're well capitalised and have a strong liquidity reserve, so we would be able to finance takeovers."

Japan's three largest container lines said this week they plan to merge, marking the latest example of industry efforts to counter a decade of weak freight rates.

Nippon Yusen KK, Mitsui OSK Lines Ltd and Kawasaki Kisen Kaisha Ltd will have a combined seven per cent of the world's container-shipping trade if the deal goes through.

"If you look at vessel prices and share prices, it's a fact that the container industry is priced at historical lows - perhaps an all-time low - which could mean that now is a good time to buy," Mr Skou said.

"But if you buy something that doesn't generate any earnings, it could turn out to be a very expensive takeover."

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