Maersk CEO: Passing on 80% of Fuel Price Rise to Customers
With oil prices at 2 and a half year highs, bunker fuel prices for ships have also been rising. That's forced shippers to resort to slow steaming to save costs. Nils Andersen, Group CEO of Danish shipping and oil titan AP Moller-Maersk, tells CNBC's Christine Tan the world’s largest container shipping company has managed to pass on a large majority of the fuel price rise to customers.
Q. AP Moller-Maersk owns Maersk Line, the world's largest container shipper with a fleet of over 500 vessels. With oil prices above $100 a barrel, how are you tackling rising fuel prices?
What we have worked very hard on is firstly to cut fuel consumption on our ships. We actually started to do this before the current high oil prices to reduce CO2 emissions. We try to establish ourselves as a leading voice of industry for reducing CO2 emissions, and I think we are very competitive on that.
On top of that, we have worked over the past years with our customers to make sure we share the risk of increasing fuel prices. So when fuel prices go up, we adjust our prices up; and when fuel prices go down, we reduce our prices.
Q. So you've been able to pass on some of that cost to your customers?
We are passing on about 80 percent of the cost to the customers, which is very positive. So we are not that affected. On top of that of course we are producing oil in a different part of the business, so we also have some upside from that.
Q. High oil prices should be good for the Group’s oil business as it contributes about a third to total earnings. What's the biggest challenge you face investing and sourcing for oil?
The biggest challenge is of course to make sure that you find and invest in projects that are really profitable long term. So we've been developing focus areas: in West Africa, the U.S. Gulf of Mexico, Brazil. We have invested quite a lot of money to get in to the business.
Q. Are these oil assets easy to find?
They are very difficult to find. We have been successful but we've also drilled quite a lot of wells. In 2011 hopefully, we'll be able to publish that we've found oil and that it's also commercial. But it takes quite a long time from the start: from looking, getting into certain blocks and say, "Ok, we want to drill here". So it may take 15 years from the start until the first oil. We are in many cases in the middle of that process, but we're quite optimistic that we will get there.
Q. Are you taking money away from container shipping unit to invest in the oil business?
I think the container shipping has gotten a lot of money from the oil business in the past. I think today we're having a more equilibrated investment policy.
This is an excerpt taken from CNBC’s longest-running feature program Managing Asia. Catch the show with anchor Christine Tan over the weekend on CNBC.