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Maersk CEO no fan of long-term contracts with rates expected to slump

MAERSK Line CEO Soren Skou has rejected reports that his company is ready to move to spot rate pricing.

Container lines have for years been talking about more long-term contracts customers, extending beyond the usual 12 months to limit exposure to freight rate volatility and achieve pricing predictability.

But both shippers and carriers are notoriously bad at sticking to contract commitments if the market moves against them, ready to renege on agreements, well aware the repercussions will be minimal.

Despite the poor track record of long-term contracts, though, there is no sign that the container trades are ready to move to a fully spot-based pricing system.

In an interview with Contanerisation International, Mr Skou said there had been no change of strategy, adding that Maersk had a mix of contract maturities of up to a year.

The breakdown now between spot contracts of up to three months, and longer term contracts of between three and 12 months duration, is 50:50 across all trades.

Each trade manager is responsible for deciding when it is best to use the spot market or when have longer commitments, but Mr Skou pointed out that long-term contract rates in the Asia-Europe trades fell last year, with some carriers signing 12-month deals at US$1,400-$1,500 per FEU.

"That would be loss-making for most companies including Maersk. I would rather live without those contracts and take a chance on the spot market," he said. "I am not a huge fan of locking in to long-term contracts at loss-making levels."

Mr Skou said is also against hedging with derivatives. He saw no merit in such instruments because of the lack of liquidity and depth in the derivative market.