[080613.EN.SEA] CMA CGM To Defy Glut With Freight Rate Hikes

CMA CGM, the family-owned French shipping group, wants to sharply raise prices on Asia-Europe container shipping routes this summer even as it plans to double the size of its fleet of giant new container vessels amid a deepening glut in global container capacity. 

The Marseilles-based company will raise fees charged on containers shipped from Asia to Northern Europe to $1,375 per container up from a current $600 on July 1, and from Asia to the Mediterranean to $1,200 from a current $900 later this month. The move follows the lead of some of the world's other major shippers including AP Moller-Maersk, the Danish conglomerate whose Maersk Line unit is the world's biggest container shipper by volume. 

CMA CGM, the world's third largest container-shipping group by volume, is at the same time adding three new ships capable of carrying up to 16,000 containers to the three it already has in service, which are for now the largest vessels of their kind afloat. CMA CGM launched the Jules Verne this week after the Marco Polo which entered service late last year and was the first of the giant 396-meter-long ships. 

CMA CGM isn't alone in adding new bigger and more fuel-efficient vessels to reduce costs and squeeze out weaker competitors unable to finance the heavy up front investments in big new ships. Maersk has ordered 20 so-called triple-E ships with a capacity to carry 18,000 containers, with its first due to set sail this summer. 

China Shipping Container Lines plans to order five of the triple-E ships. United Arab Shipping Co. (UASC) is also expected to order the giant new ships. 

But big shippers' strategy is contributing to a widening glut in capacity on the busiest shipping routes in the short term and putting downward pressure on freight rates despite the efforts of some ship owners to push through price increases. 

CMA CGM is unrepentant about its strategy.

 

"There is a market feeling that we cannot have an industry that consistently loses money on some routes," Chief Financial Officer Michel Sirat said in an interview. 

Mr. Sirat declined to say on which routes CMA CGM currently makes losses, but the company booked a net profit of $102 million in the first quarter despite rock bottom rates thanks to growth in volumes on routes to North and South America, Africa, Russia and within Asia. The company lost $240 million in the first quarter 2012. 

"If the price increases stick we will be able to make a good profit in 2013," Mr. Sirat said. The company reported a net profit of $361 million in 2012. 

Mr. Sirat said the order for three new mega ships to add to the three it already has in service is part of the company's plans to cut costs, with some old vessels likely to be scrapped or sold to keep the group's overall capacity roughly stable. 

CMA CGM is confident it can achieve significant cost savings with the new ships which are 20% more efficient than its existing fleet which have a maximum container capacity of 14,000 containers. But it has also struck deals to pool capacity with Maersk and Mediterranean Shipping Co. SA on Asia-Europe and Asia-Mediterranean routes in another effort to defray its costs. 

Source : Dow Jones.