In response to weak demand, Maersk has also cancelled options for eight containerships – six 19,630-TEU vessels and two 3,600-TEU feeder ships – and could cancel eight more, according to the Danish shipping conglomerate.
The world’s largest container shipping company, Maersk Line, said it will eliminate 4,000 jobs or about 17 percent of its 23,000 land-based staff as it seeks to reduce sales, general and administrative costs by $250 million per year. The ocean carrier expects to achieve savings of $150 million in SG&A costs in 2016.
A chart from a presentation Maersk Line gave Sept. 9 shows that annual SG&A expenses have declined at a compound annual rate of 2.3 percent or about $150 million between the first quarter of 2012 to the second quarter of this year when they amounted to about $2.025 billion.
As a response to the current market outlook, Maersk said it will continue to reduce network capacity this year and in 2016. Maersk has already discontinued four strings — the ME5 between Europe and the Middle East and Indian subcontinent, the Asia-Europe strings AE9 and AE3 and and the transatlantic string TA4 — in the past two months.
Maersk said it has plans to cancel a further 35 sailings in the fourth quarter of 2015. A spokesman said those canceled sailing will likely be on east-west routes, but did not specify as to which loops would be affected.
The carrier also said it will not exercise options to build six 19,630-TEU containerships and two 3,600-TEU feeder ships. It also said it is postponing a decision on whether to build eight more 14,000-TEU vessels.
Maersk said it is making the moves “as a response to both the short term and long term market outlook. In light of the lower demand these initiatives will allow Maersk Line to deliver on the ambition to grow at least in line with the market to defend the market leading position.”
Alphaliner reported last month that 263 idled containerships with aggregate capacity of 934,700 TEU were laid up representing 4.7 percent of the total global fleet, including 23 ships and one of Maersk’s 18,000-TEU Triple- E ships.
Maersk’s reduced profit outlook and idling of one of its Triple-E flagships “is a stark reality check for an industry teetering on the edge of a return to heavy losses that has thus far only been avoided because of low fuel costs, and could be the trigger for action that is required to stop the rot,” London-based consultants Drewry said this week.
“Maersk Line has a long history of leading the container market – from ordering the biggest ships to setting standards for service reliability – so it is good news for the industry that it has decided to try and restore ailing profits by laying up large ships as there is a very high likelihood that others will follow,” said Drewry.
“We will make the organization leaner and simpler,” said Søren Skou, Maersk Line’s chief executive. “We want to improve our customer experience digitally and at the same time work as efficiently as possible.”
Maersk said it will seek to reduce layoffs through “managing natural attrition.”
“We are fewer people today than a year ago. We will be fewer next year and the following year. These decisions are not taken lightly, but they are necessary steps to transform our industry,” said Skou.
Lars Jensen, chief executive officer and a partner at SeaIntelligence Consulting, said that “if you are one of the people that are affected by this it is very, very bad news.” But from a company or industry point of view, the announcement can be seen as a sign of Maersk’s strength and a decision that is symptomatic of the entire industry, according to Jensen.
“They were planning to do this, but just over a longer period of time anyway. This is the result of several years of them improving internal productivity in terms of changing business processes, and more importantly, improving IT tools for both internal use, but also for use with customers and suppliers. When you are improving your productivity either you need fewer people or you need more business to handle the same amount of people. And with very low demand and growth in the industry, then clearly if you are improving internal productivity then you need fewer people.
“Overall, I do not see this as a sign of weakness on the part of Maersk, I actually see this as a sign of strength. That they are able to accelerate this shows me that they are confident enough in their internal productivity improvements can also be done faster than they had envisioned,” said Jensen.
He noted Maersk was clear that it wants to retain its market share, so it is not planning to reduce the amount of cargo it handles. Jensen expects other container lines will take similar steps to reduce staff and capacity, though he said they may not be as open about it as Maersk or be able to accelerate automation and staff reductions as quickly.
Jensen did not know exactly what kinds of jobs Maersk will eliminate, but said “one of the things that has been plaguing the industry for years is that you have a large element of manual work involved in all the documentation from the point where you book a container to where you make your transportation documents to you do your invoicing — there is a lot of paperwork involved. Transforming this into something that is completely computerized is a process that has taken a long, long time. A lot of the jobs associated with handling all that paperwork — those are the jobs I would expect to be primarily disappearing.”
Maersk’s move to automate its processes not universally applauded, however, as one NVOCC executive told American Shipper his company has moved its business away from Maersk to other carriers because of a lack of personal attention.
“It’s automated to a point where it is like dealing with one of the big mail order companies,” he said.
Maersk Line to eliminate 4,000 positions
