Franck Dedenis has been flying between Mumbai and Paris virtually every fortnight ever since he was appointed head of Maersk Line in India in January. He is forced to wear two hats as his successor in France, where Dedenis was heading the shipping line’s operations for four years, is yet to take charge.
But the new boss of Maersk India appears to have his fingers already on the pulse of the local shipping market. He was quick to react on reports about a section of the Indian seafood exporters’ allegation that shipping lines have unilaterally jacked up freight rates on reefer (refrigerated) containers. Maersk is a leading player in reefer service.
“We are not here to cannibalise on our customers’ profit margins. But we got to ensure a minimum return on our investments to remain in the market long-term as a reliable supply chain partner,” he said.
Hike in reefer rates:
Shipping lines including Maersk have hiked reefer container rate by $1500 from January on all major routes. Seafood exporters complain that the hike was steep and done unilaterally and irrespective of destination. The rates now range from $3000 to $3500 per container to Indian-Europe sector, said a shipping agency official.
According to shipping lines, reefer rates were ruling at uneconomic levels. Even after the recent revision, rates are still at 2005 levels, it is said.
“There has always been a perception that reefers are more profitable. But the fact is that cost of a reefer container is 3.5 times more than that of a dry container,” said Dedenis.
Maersk, the global leader in container shipping, has invested over $2 billion on reefers in the last two years. “Today we have the largest fleet of 230,000 reefers. If we put all of them together, they would go all across Australia—more than 3500 kms,” he remarked in a lighter vein.
According to Dedenis, the rate hike was not a unilateral decision. “We have discussed with our customers 3-4 months in advance and the hike is not confined only to Indian market. It is applicable to Maersk customers across countries,” said Dedenis in a conversation with Business Line.
Deepest recession
Globally shipping lines have been operating in a difficult market environment. Overcapacity has been hurting freight rates in alls segments, be it containers, tankers or bulk trade. Most companies have been reporting losses in the last two years.
In 2011 Maersk Line reported a loss of $553 million, but in 2012 it came back in the black with a profit of $461 million. “We have been fortunate to have a small profit. Considering the cost of our investments, this is nothing much to write home about,” he said.
Dedenis admits that some customers may not be happy with the rate hike. But contrary to the general view, the reefer rate revision has not hit Maersk’s volumes. In the last quarter it carried a sizeable portion of the seafood exports from the western region. Besides, the overall reefer volumes including meat, fresh produce, pharmaceuticals, chemicals and frozen foods have remained stable, he explained.
Those who criticize the rate increase do not see the clear mismatch between the prevailing rates and the cost of investments in reefers, said Santhosh Kumar Singh, head of trade and marketing, Maersk Line India, who has been in liner shipping for more than a decade. “Through the general rate increase, we are only trying to bring the rates up to the level we can meet our costs. We have no control over the market. What we are trying to do is to control our costs,” he said.
Market leader
The Copenhagen based Maersk Line, an AP Moller Group company, is the market leader in container trade in India. Based on industry estimates, it has a 16 per cent market share, carrying more than seven lakh 40-feet containers in and out of India annually.
Maersk vessels have been calling at Indian ports since 1951. But it started its own offices in India only in 1990. Today the line operates regular services to 14 ports and has offices in more than 20 cities.
Indian potential:
Dedenis sees India as a strategically important market. “India is a growing market, though the growth has not been as much as we expected in the last couple of years,” Global container trade is expected to grow only two per cent this year. But we expect trade in India to grow at least five per cent”, Dedenis said.
Where do you see the market growing? The trade with developed economies like North America and Europe is likely to witness a slow down or at best remains stagnant. The growth is expected to be fuelled by trade between developing nations. Middle East, Latin America, Far East and Africa (particularly West Africa) would be major trading partners, he observed.
The Maersk boss is clear about his strategy for the Indian market: “Grow profitably with the market by focussing on high-yielding cargo.”
Though it will continue to be on its traditional “bread and butter” sectors like North America and Europe, it will aggressively tap the emerging sectors like Far East, Africa and Latin America. “We have a comprehensive service network linking India to all these developing markets,” Dedenis elaborated.
Maersk has been expanding its services in India. It started calling at Hazira in Gujarat last month and before that at the new Krishnapatinam port in Andhra Pradesh.
Where is the next port of call? “Currently we are calling at several ports in India.
There is no point in merely putting our assets at more ports. The new services will depend on cargo availability and customer demand. We went to Hazira as we saw customer demand there,” Singh pointed out.
What about Vallarpadam terminal at Kochi? “We have evaluated Vallarpadam in the past. Cabotage was an issue then. But that has been resolved now. We need to assess the demand. From a long-term perspective, we are positive on Vallarpadam,’’ said Singh.
On the port capacity in the country, Singh feels there is no point in creating more and more ports. What we need is three–four world class ports, like in China. What is important for India is to reduce its logistic cost which is 12-13 per cent of the GDP as compared to 7-8 per cent in the developed world. This is possible with better ports, good connectivity and reliable shipping service