Executive Briefings

Is 'Era of Trans-Pacific' Ending? Maersk Chief Sees Higher Growth in Other Trades

The trans-Pacific trade has dominated global container markets for several decades. But that picture might finally be changing. While overall container activity grew 10 percent in 2007, volumes from Asia to the U.S. West Coast were flat. Meanwhile, the trades between Asia and Africa, Europe and South America saw growth in the double digits, as high as 20 percent, according to Nils S. Andersen, partner and group chief executive officer of A.P. Moller-Maersk A/S. Speaking in Long Beach, Calif., at the annual Trans-Pacific Maritime Conference (TPM), sponsored by the Journal of Commerce, he said the trans-Pacific trade "is heading for a period of stagnant growth." Yet the dip in volumes has been more than offset by greater demand on other routes, and carriers are responding with major shifts of tonnage. Maersk has removed 30 percent of its trans-Pacific capacity and redeployed it to other markets. Such actions were responsible for a 4-percent decline in trans-Pacific container capacity last year. And it looks as though the trend will continue in 2008, with the rosiest scenario calling for 2-percent expansion of the U.S. economy and the worst seeing no growth at all. In fact, said Andersen, double-digit growth in the trans-Pacific might not return for some time. Some observers, he noted, believe that the outsourcing of U.S. manufacturing to China-a trend that drove huge growth in the eastbound trade in recent years-has peaked. U.S. exports, meanwhile, are on the rise, but they'll need to more than double in volume before having an impact on the historical imbalance in the trade.

Andersen believes economic problems in the U.S. will affect global trade growth, but not to the extent seen in the previous down cycle. The Europe-Asia trade will continue to thrive, at least until European manufacturers achieve the same level of outsourcing to low-cost Asian producers as their U.S. counterparts. As for ocean carriers, they will keep on trying to improve their operating margins through higher freight rates and surcharges. "They need to find ways to pass cost increases on to the customer," Andersen said. Bunker fuel represents the greatest expense, with carriers and shippers bickering over the best formula for allocating the increased cost. But carriers are struggling with many other sources of higher cost as well, related to the need for improving physical infrastructure and information systems, as well as coping with new requirements for increased security and environmental measures. "Margins in the trans-Pacific," Andersen said, "are really razor-thin."

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The trans-Pacific trade has dominated global container markets for several decades. But that picture might finally be changing. While overall container activity grew 10 percent in 2007, volumes from Asia to the U.S. West Coast were flat. Meanwhile, the trades between Asia and Africa, Europe and South America saw growth in the double digits, as high as 20 percent, according to Nils S. Andersen, partner and group chief executive officer of A.P. Moller-Maersk A/S. Speaking in Long Beach, Calif., at the annual Trans-Pacific Maritime Conference (TPM), sponsored by the Journal of Commerce, he said the trans-Pacific trade "is heading for a period of stagnant growth." Yet the dip in volumes has been more than offset by greater demand on other routes, and carriers are responding with major shifts of tonnage. Maersk has removed 30 percent of its trans-Pacific capacity and redeployed it to other markets. Such actions were responsible for a 4-percent decline in trans-Pacific container capacity last year. And it looks as though the trend will continue in 2008, with the rosiest scenario calling for 2-percent expansion of the U.S. economy and the worst seeing no growth at all. In fact, said Andersen, double-digit growth in the trans-Pacific might not return for some time. Some observers, he noted, believe that the outsourcing of U.S. manufacturing to China-a trend that drove huge growth in the eastbound trade in recent years-has peaked. U.S. exports, meanwhile, are on the rise, but they'll need to more than double in volume before having an impact on the historical imbalance in the trade.

Andersen believes economic problems in the U.S. will affect global trade growth, but not to the extent seen in the previous down cycle. The Europe-Asia trade will continue to thrive, at least until European manufacturers achieve the same level of outsourcing to low-cost Asian producers as their U.S. counterparts. As for ocean carriers, they will keep on trying to improve their operating margins through higher freight rates and surcharges. "They need to find ways to pass cost increases on to the customer," Andersen said. Bunker fuel represents the greatest expense, with carriers and shippers bickering over the best formula for allocating the increased cost. But carriers are struggling with many other sources of higher cost as well, related to the need for improving physical infrastructure and information systems, as well as coping with new requirements for increased security and environmental measures. "Margins in the trans-Pacific," Andersen said, "are really razor-thin."

Visit www.maersk.com