Business and Market Exposure Maersk Line

Topics: Supply and demand, Containerization, Microeconomics Pages: 3 (854 words) Published: July 11, 2008
Business and market exposure Maersk Line
Dependency on global economy and world trade

Being in an international industry, the market for Maersk Line is global and the demand for its container shipping services is directly correlated with the development in the global economy and the world trade situation. Globalization of world industries, spurred by deregulation policies and trade liberalization, as well as an increase of export volume from e.g. China has in recent years been an important driver of GDP and growth in world trade.

Demand and supply
Thus the demand for cargo being transported has increased – but so has the supply of vessels. The growth in world trade - and expectations of further growth - has in recent years fuelled a growth in capacity in the container shipping industry. Thus, between January 2000 and January 2006, the TEU capacity deployed on liner trades has risen from 5,150,000 TEU to 9,135,000 TEU, i.e. a 77.4% increase.

Also Maersk Line has increased their capacity significantly. This has been done through newbuilding (of vessels), chartering and acquisitions. Today, Maersk Line’s fleet of containerships totals more than 500 vessels. The relation between supply and demand varies from time to time, but, recently, the newbuildings have reached a level, where the balance between supply and demand may have tipped to what seems to be overcapacity within the industry, causing average vessel utilization in eastbound transpacific and westbound Asia Europe tradelanes to fall from 95% in 2004 to 85% in 2006.

The imbalance in world trade – with more goods being transported from Asia to US and Europe than the opposite way, resulting in transport of lots of empty containers – has added to utilization problems and pressure on earnings. Given the relatively inelastic nature – in the short term - of the market demand in container shipping business (locations of shippers, e.g. manufacturing plants, and clients, e.g. supermarkets, are not changed...
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