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Maersk scales back cargo accepted from forwarders

Danish carrier targeting long-term contract growth and reduced exposure to spot markets

Long-term relationships with key accounts are at the centre of Maersk’s business model as it aims for stability and resilience, even if that means missing out on higher rates that may prevail in the short-term market

MAERSK continues to cut back on the volume of business accepted from freight forwarders as the Danish group focuses on long-term contracts with its key customers and reduces its exposure to the spot trades.

Amid recent speculation that Maersk planned to stop working with freight forwarders altogether and handle all cargo moved by shippers directly, the company’s head of Ocean and Logistics division, Vincent Clerc confirmed that the line was adjusting the balance between the two streams of business.

With the goal to keep fleet capacity at around 4.3m teu, and to increase space allocated to long-term-term customers, “then it means by default we are reducing the footprint that we have with freight orders to about 25% and 30% of total business in 2022,” Mr Clerc said during an earnings call following the release of Maersk’s record-breaking 2022 results.

Forwarders, which move freight on behalf of clients, are likely to buy space in the spot market which has been enormously volatile over the years, with rates soaring to unprecedented highs during the pandemic. Maersk admits it may miss out on some of that high-paying cargo as it aims for more predictability.

“For us, we are investing in building a long-term, more sustainable, resilient, and stable business, so we have made the decision to forfeit some of the spot opportunities to invest in long-term relationships that integrated logistics presents for us,” said Mr Clerc.

In 2021, the spot market accounted for 35% of total liftings, while 65%, equivalent to 6.5m feu, was moved under long-term contracts in the long-haul trades. Of that, 1.5m teu was covered by multi-year contracts, some of which extend for up to 10 years.

This compares with a ratio of 52% covered by short-term contracts in 2017, with 48% moved under long-term commitments.

In 2022, the goal is to shift the ratio further to 70%, or 7m feu, covered by annual or multi-year contracts where average rates are expected to increase by $800 per feu.

That compares with a $1,000 per feu rise last year and contrasts with long-term contracts rates of around $2,000 per feu prevailing in 2019 and 2020.

In 2021, “we saw a $1,000 per feu increase from $2,000 to $3,000 on long-term contracts,” said chief financial officer Patrick Jany. “Adding $800 brings you to $3,800 as an average contract rate.”

Mr Clerc also said there was no longer a contracting season as there was in the past when, for example, annual price and volume agreements covering the transpacific trades were typically renewed on May 1.

“The normal seasonality of contract renewals is out of the window and has been for the past 18 months,” he said, with no fixed dates in the calendar any longer.

Price commitments vary from one contract to another, with some containing fixed rates for maybe a couple of years, and others allowing for rate adjustments based on market indicators and indices.

Although spot rates have been higher than long-term rates during the pandemic, Maersk expects them to start declining, so the reducing revenue from the 30% of cargo moved under short-term contracts.

AP Moller-Maersk chief executive Søren Skou said it was likely that supply chain congestion would ease in the second half of the year, and that if it did, spot rates would come down from their current highs.

“The reality is that we don’t have any experience of coming out of a pandemic,” he said.

“Everything we can see right now looks very strong but we also have to assume that at some point people will come back to work, bottlenecks will ease and things will return to normal. That will release capacity into the market, along with new capacity being delivered this year.”

Nevertheless, the demand was set to remain high at least for the first six months of the year.

“We are not yet seeing any changes to the demand picture,” he said. “It is very strong and that is why we are guiding for a 2%-4% total demand growth this year.

“We don’t have any line of sight to that situation changing. It corresponds to our guidance that we expect a strong first and second quarter, but we cannot look all the way to the end of the second quarter.

But Mr Jany warned that any change in demand and spot rates could come quickly.

“Our guidance implies a significant reduction in short-term rates as soon as normalisation happens. Our assumption is that it happens early in the second half of 2022.”

Additional reporting by James Baker

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