“The world economy has changed over time, and we have entered into a new norm,” says Robbert van Trooijen, chief executive, Asia Pacific Region for Maersk Line. Van Trooijen was delivering the opening keynote address on the first day of TOC Asia’s Container Supply Chain Conference in Singapore.

Van Trooijen said that freight rates have been declining over the last 10-15 years, which has led to a need for economies of scale. Carrier companies are therefore investing in larger ships to get the cost per TEU down, but this has led to overcapacity.

Outlining the relationship between GDP and trade growth, van Trooijen explained that traditionally, trade growth has always accompanied GDP growth. As GDP has grown, trade has grown by a factor of three. After the 2007-2008 financial crisis, this growth fell to a factor of two, but since 2012, growth has fallen further to 1% – or even less than 1%. This means that containerized freight trade is now growing at a slower rate than GDP.

Double-digit growth will not be seen for the next few years, but van Trooijen says that when reports say growth remains subdued, this is generalizing a bit, as there are actually pockets of growth and pockets of decline. For example, prospects for Asia-Europe trade may be surprisingly good.

If you generalize too much, van Trooijen says, you may miss the opportunities that do exist.

In 2015 there was a 7% growth in capacity, but only a 1% growth in demand, and since January 2015, freight rates have declined by 27%. In the short term, customers may benefit from lower freight rates, but for ships to be profitable, they must be full. Sailing when filled to 95% of capacity – and sometimes even to 99% of capacity – is no longer enough. With a no-show rate of 20%, carriers have to book 120% of capacity before they are ready to sail. This takes more time, van Trooijen says.

The industry also needs to be mindful of shaky fundamentals, he warned. World economic growth is moderate, and to a large extent the global economy depends on China. While China’s growth is slowing, its economy should be able to avoid a hard landing, he says. Van Trooijen says the industry must remain vigilant, as China container trade is projected to grow only moderately, freight rates are expected to continue to decline, and industry profits are low.

Containerization and the logistics industry have helped emerging economies to grow, van Trooijen said. The value that the industry brings to the global economy is important, and that value needs to be recognized.

By Darren Barton

Asia Cargo News | Singapore