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Maersk CEO on Skyrocketing Freight Rates: ‘No Doubt We See Inflation Creeping Up’

A.P. Moller-Maersk CEO Soren Skou cited one culprit driving demand and historically high ocean freight rates: stimulus checks.

“The pipeline is bursting at its seams,” Skou said in an interview Monday with CNN’s Richard Quest addressing global supply chain challenges. “First of all, there’s a very strong demand led by the U.S. and all of the stimulus money that has gone to the U.S. consumer. On top of that, there’s a huge inventory rebuilding cycle going on…also because a year ago in the second quarter of 2020, a lot of companies stopped buying in Asia or really scaled down their purchases because nobody knew where the world was going. We thought that we would have a major global crisis, but then… the stimulus came and demand came roaring back.”

Quest asked Skou about the huge spike in shipping rates that is contributing to global inflation at the moment, particularly in places like the U.S. and Europe. For the week ended Aug. 29, Drewry’s composite World Container index increased 2 percent to reach $9,613.28 per 40-foot container. This was 360 percent higher than the same week in 2020 and the 18th consecutive week of increases.

“There’s no doubt that we see inflation creeping up,” Skou said. “I do expect, however, that things will normalize as we work through this period of extraordinary demand and as inventories fill up again.” In a bit of good news for global shipping, Bloomberg reported Monday that cargo ships have resumed birthing at Ningbo’s container terminal in China, which authorities shut down after a single worker tested positive for Covid-19.

Alternative fuels

Switching to alternative fuels will make the shipping industry less dependent on traditional oil-based fuels that are traded as commodities and subject to extremes in inflationary pricing.

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In that regard, Maersk said it has identified its partner to produce green fuel for its first vessel to operate on carbon neutral methanol–REintegrate, a subsidiary of the Danish renewable energy company European Energy.

REintegrate and European Energy will establish a new Danish facility to produce the approximately 10,000 tons of carbon neutral e-methanol that Maersk’s first vessel with the ability to operate on green e-methanol will consume annually. Maersk will work closely with REintegrate and European Energy on the development of the facility.

Maersk CEO Soren Skou, in an interview with CNN, said U.S. economic stimulus funds are driving demand and high ocean freight rates.
European Energy will establish a new e-methanol facility in Denmark and provide renewable energy to fuel it. Courtesy

“This type of partnership could become a blueprint for how to scale green fuel production through collaboration with partners across the industry ecosystem and it will provide us with valuable experiences as we are progressing on our journey to decarbonize our customers’ supply chains,” Henriette Hallberg Thygesen, CEO of fleet and strategic brands at Maersk said. “Sourcing the fuels of the future is a significant challenge and we need to be able to scale production in time. This agreement with European Energy/REintegrate brings us on track to deliver on our ambition to have the world’s first container vessel operated on carbon neutral methanol on the water by 2023.”

The methanol facility will use renewable energy and biogenic CO2 to produce the e-methanol. The fuel production is expected to start in 2023. The energy needed for the power-to-methanol production will be provided by a solar farm in Kassø in southern Denmark.

REintegrate has a proven track record for producing green e-methanol with a test laboratory in Aalborg, Maersk noted. The new site will be its third e-methanol facility, with construction an e-methanol facility in Skive, Denmark to begin next year.

“We’re proud to be a part of the first large scale e-methanol production in Denmark,” Knud Erik Andersen, CEO of European Energy, said. “While renewable energy is becoming more and more common in the energy mix of electricity consumption, this is one of the first steps in heavy transportation toward using 100 percent renewable energy. This agreement marks a milestone in the journey toward green transition in the shipping industry.”

Maersk announced the dual fuel vessel, an industry first, in February. In June, Maersk said that Hyundai Mipo Dockyards will be building the 2,100 20-foot equivalent (TEU) feeder. It will be 172 meters long and is expected to join the Maersk fleet in mid-2023. It will sail in the network of Sealand Europe, a Maersk subsidiary, on the Baltic shipping route between Northern Europe and the Bay of Bothnia. Danish fashion company Bestseller has committed to carbon-neutral ocean transport with Maesk.