Maersk, DSME Reach Agreement in Principle on Container Megaship Order

Maersk, DSME Reach Agreement in Principle on Container Megaship Order

The Danish container-shipping giant expects to take the first up to 11 vessels from the Korean shipbuilder in 2017

By Costas Paris in the Wall Street Journal

LONDON — Container-shipping giant Maersk Line has agreed in principle to order up to 11 ships with a capacity of around 20,000 containers each from Korea’s Daewoo Shipbuilding & Marine Engineering Co. at a record low price of around $151 million each, people directly involved with the matter said.

The Wall Street Journal reported the impending order on Monday. DSME said in a filing to South Korea’s stock-exchange operator later in the day that it was in talks with a European carrier for an order of container ships, but it said no contact had been signed and gave no further details.

This is the first time since 2011 that Maersk Line, a unit of the Danish shipping and oil conglomerate A.P. Moller-Maersk A/S, has returned to the market for ships of this size. Back then, it placed an order with DSME for 20 so-called Triple-E ships, which carry in excess of 18,000 containers each. The Copenhagen-based carrier, the world’s largest by capacity, paid $185 million for each vessel, and the last two ships from that order will be delivered to Maersk by July.

“The new order will be announced by June,” one of the people said. “Maersk will pay the lowest price until now for ships of that size.” Other European and Asian carriers have recently agreed to pay around $165 million for similar vessels.

‘Maersk will pay the lowest price until now for ships of that size.’

A second person said the ships would be deployed in the Europe-to-Asia trade loop as part of Maersk’s 2M alliance with Swiss-based Mediterranean Shipping Co. The ultimate size of the order will depend on Maersk’s determination of the optimal number of ships to carry the containers it needs to move weekly on the loop, this person said.

Asian yards have been enjoying high profit margins for years mostly though orders of offshore oil-drilling vessels, but that market has all but collapsed after recent falls in oil prices. That has forced the shipbuilders to slash prices on other kinds of ships to secure orders. The deal with Maersk is the first for DSME this year for ultra-large container vessels. The Korean yard notched a total of $1.4 billion in new-ship orders during the first quarter, compared with $1.7 billion in the corresponding period of 2014.

News of the potential order broke in February, when Maersk Line Chief Executive Soren Skou told The Wall Street Journal in an interview that the carrier was looking to order 11 large vessels needed for a weekly round trip from Asia to Northern Europe.

Container shipping, which moves more than 95% of the world’s manufactured goods, is largely controlled by about a dozen European and Asian operators. Those companies have come together over the past year to form alliances that substantially cut operational costs through the sharing of vessels, trade networks and port calls.

Industry officials say that over the next three years, smaller competitors likely will be forced out of the main trade lines from Europe to Asia and across the Pacific and Atlantic oceans, as they won’t be able to compete in terms of cost and capacity.

Maersk’s 2M alliance with MSC moves 35% of all cargo between Asia and Europe and also controls a market share of 15% and 37% of goods moved on the trans-Pacific and trans-Atlantic routes, respectively. The rival Ocean Three grouping, made up of French shipping giant CMA CGM SA, China Shipping Container Lines Co. and Middle East shipping major United Arab Shipping Co., controls a 20% slice of all cargo between Asia and Europe and 13% and 7% across the Pacific and Atlantic oceans, respectively.