Maersk Line CEO: Govt subsidies not needed for international shipping

Governments no longer need to subsidise or fund international shipping, given that it operates in "a competitive and effective market", Maersk Line chief executive Soren Skou said yesterday.

He said governments have "almost" exited container shipping on realising that the sector can stand on its own two feet.

He cited the Temasek Holdings' divestment of Neptune Orient Lines as one example. Temasek sold its stake in to CMA CGM while more recently, Maersk Line wrapped up the acquisition of German shipping line Hamburg Sud.

Such deals have helped to trim capacity in the box ship segment, which also saw its newbuilding order book fall to 12 per cent of its existing tonnage, down from a whopping 60 per cent 10 years ago.

Mr Skou, who was giving the Singapore Maritime Lecture, noted the flurry of newbuilding activity in recent months but acknowledged that the industry is not out of the woods yet.

Early this month, Hyundai Merchant Marine unveiled a newbuilding programme involving 20 box ships. This came after Mediterranean Shipping Co and CMA CGM confirmed orders for a total of 20 giant box ships last September.

Observers have flagged government subsidies as an added impetus to this recent spate of new-build orders. While refraining from commenting on any specific deals, Mr Skou argued that there is no basis for "government to subsidise shipping at all".

He further contended that even if the market is left to function on its own, it is capable of taking care of consumers.

Despite having undergone a massive consolidation, container shipping "is still a very competitive industry, with more than 10 global carriers still standing and new services added every week", he said.

One other factor that may have fanned these recent newbuild orders is a new international shipping regulation on the horizon.

The International Maritime Organisation (IMO) has firmed up its earlier plan to impose a 0.5 per cent cap on sulphur content in marine fuel from 2020.

Ahead of this cap, CMA CGM has committed to use mostly liquefied natural gas (LNG) to power all nine ships on order with a yard in China.

Burning LNG, a greener fuel compared to the commonly used marine fuel oil, is one option to comply with the IMO cap.

Mr Skou did not rule out the use of LNG for Maersk Line, but he qualified that the LNG option is only on the table if the shipping line wants to build new ships. He also reiterated that Maersk Line prefers not to go with a second option that calls for the installation of scrubbers. Scrubbers remove sulphur oxides from ship engines and boiler exhaust gases. Maersk's key concern is the massive amount of space they take up, which otherwise will go to accommodate more containers.

Maersk Line's preference is to take "clean fuels" from refiners, Mr Skou said. That is likely the key option shipping lines may turn to during "the first part of 2020s" while LNG as marine fuel will take one to two decades more to gain the required traction, he said.

A version of this article appeared in the print edition of The Straits Times on April 27, 2018, with the headline 'Maersk Line CEO: Govt subsidies not needed for international shipping'. Print Edition | Subscribe