The Danish container shipping giant wants to go ashore in search of profits

You can read this article in 6 minutes

The Danish container shipping giant wants to go ashore in search of profits

Moller-Maersk – the world’s largest commercial shipping operator plans to increase its revenues through new investments. Interestingly, it will not invest in the maritime business for this purpose. The Danish giant is going to buy warehouses, container terminals and customs agencies.

Just such a selection of investments is to expand the company’s capabilities in terms of the provision of logistics services. Maersk intends to change its strategy and hopes to make land-based services the source of half of its revenue in two years, the Wall Street Journal reports.

Today up to 80% of our earnings come from container shipping,” Maersk Chief Executive Soren Skou said in an interview for The Wall Street Journal. “Hopefully a couple of years from now this will be much closer to a 50-50 scenario between the ocean and nonocean services.”

Mr Skou’s plan would extend a transformation of the 115-year-old maritime business that began when he became CEO three years ago. Since then, the sprawling Danish conglomerate has disposed of its oil and tanker businesses to focus more closely on building a singular company with container shipping at its centre that provides transportation and logistics services to big customers like Walmart Inc. Mr Skou plans to complete the restructuring of the giant by 2021.

Struggle for a client outside the sea

Mr Skou said the stronger focus on inland logistics comes as the company continues to feel the aftereffects of the 2008 financial crisis, which dealt a blow to global trade, and as the Maersk Line, container ship operator faces new challenges from the growing trade dispute between the U.S. and China. To put this in perspective, in 2011 turnover in the Maersk Group was around $60 billion and in 2016 – $35 billion.

Maersk Line has around 70,000 customers at sea, moving around 20% of all container capacity. Clients include a range of businesses, from U.S. retail chains and car makers to furniture suppliers, electronics companies and clothing importers.

But less than a quarter of those customers use the company to move their goods from ports to warehouses and distribution centres. For Maersk and some of its oceangoing rivals, the business of managing goods onshore is looking especially attractive after several years of sagging freight rates have eaten away at profit margins.

Rivals have already come ashore

This can be seen from the actions of other major players in the container shipping market. France’s CMA CGM SA, the world’s fourth-largest container ship operator, this year bought Ceva Logistics. This Switzerland-based freight services provider has 1,000 warehouses worldwide and 130 in the United States and Canada. Chinese shipping companies Cosco Shipping Holdings Co. and China Merchants Shipping and Enterprises Co. have poured billions over the past decade into terminals, rail links and road infrastructure as part of Beijing’s One Belt, One Road initiative. Similarly, global logistics providers such as Kuehne + Nagel, Deutsche Post and Denmark’s DSV have hundreds of warehouses around the world. Those companies handle business for big customers such as Walmart, Amazon and Home Depot that source goods from scores of vendors across Asia, which are delivered to warehouses in China and then packaged and shipped to the U.S. and Europe.

The CEO of Maersk wants to offer similar services.

We want to do that. We want to run the warehouse, receive the goods, stuff them into containers, ship them to the U.S. and provide a data feed that says the yellow swim trunks are in that box. Then we take them out of the containers, and send the goods by trucks to distribution centers closer to the final delivery point, said Mr Skou in the interview for The Wall Street Journal. 

Maersk’s container terminals unit operates a network of 76 ports in more than 100 inland cargo-handling locations around the world. In North America, it runs along with Damco, Maersk’s freight forwarding unit, 20 warehousing and distribution facilities in places such as California, New Jersey, Texas and Georgia.

Analysts say that Maersk is faced with a market that ultimately views its services as commodities.

So it’s got to find a way to add value to make sure it’s a shipping line of choice,” said Nick Bailey, the head of research at U.K.-based Transport Intelligence Ltd.

Acquisitions and challenges

Maersk’s CEO said he is looking for rapid growth in automotive logistics and chemicals, where Maersk would run the process from customs clearance to distribution centre deliveries. The carrier won’t be a last-mile supplier so it isn’t looking to invest in trucks. Instead, Mr Skou said he is on the lookout for brokerage firms and supply chain management companies in the automotive industry.

The company bought U.S. customs house brokerage Vandegrift Forwarding earlier this year, and Soren Skou said there may be more such acquisitions. Last year Maersk invested in the startups Load-Booking and Loadsmart, while in June it launched an online tool called Maersk Spot aimed at simplifying booking with the shipping line.

Despite all these steps, some senior managers working for the Danish operator continue to debate whether it’s better to get on the phone with customers they have known for years and negotiate freight rates or let them book ship space on digitized platforms.

For Maersk, it will be a real challenge to turn around a business that grew from a company formed early in the 20th century that grew into an umbrella group overseeing investments from ships to supermarkets.


Trending articles
Trending articles