A.P. Møller -Maersk CEO Søren Skou said the company is striving to become a “global integrator of container logistics” so that shippers can make arrangements by “just dealing with Maersk.”
The chief executive officer of Maersk says his company wants to provide end-to-end transportation services by becoming a “global integrator of container logistics” so that shippers can make arrangements by “just dealing with Maersk.”
“We can do a better job for our customers,” Søren Skou, the chief executive officer of A.P. Møller -Maersk, told analysts attending his company’s “capital markets day” presentation in Copenhagen on Tuesday.
He updated them on progress the company has made since December 2016 when it outlined plans to take the company in a “new direction” and focus on container shipping, ports and logistics, shedding its involvement in the oil and gas business.
Shippers tell Maersk that ocean transport is so inexpensive that its cost hardly figures into the decision as to where to manufacture products, Skou said.
However, he noted how those customers also complain that global shipping is difficult and complicated, and can be frustrating, and at times, quite painful. “We are building a strategy where we aim to deal with those issues,” he said.
Skou said Maersk is working toward providing shippers with simple, end-to-end services that will make it possible to arrange transportation by just dealing with Maersk – including inland transport, custom house brokerage, financing of goods, insurance, consolidation and other services relevant to its customers.
Maersk aims to emulate UPS, FedEx, DHL and other express package companies where shippers can deal with a single company if that is what they want, he explained.
He said the company also wants customers to be able to seamlessly engage with Maersk by “digitizing” processes and allowing customers to “self-serve” when getting price quotes, booking cargo, creating or uploading documents, and paying their bills.
However, he said customers, if necessary, should also be able to engage with customer service representatives who care about their needs, are trained, and have the power to help customers.
Maersk needs to have a service network with wide geographic coverage, competitive transit times, and high reliability, but it must be cost competitive, he said.
Maersk believes the likelihood that it would be able to establish a service package that is so good that it could charge a meaningful premium and be able to sustain a high cost culture is simply not realistic, he explained.
“We are strong believers that in the long run in our industry, lowest cost will win,” he said. “The way to build up market difference and maintain it is to have lower cost than the competition. We are a scale-based industry. We have done that in the past and will be able to do that in the future.”
Transforming the company from a conglomerate to one focused on container shipping, ports and logistics has been complicated by Maersk’s efforts to divest assets at a time when the oil and gas industry is in a slump, he explained.
In addition, Maersk acquired Hamburg Süd last year and is now integrating the two companies.
Still Skou said he believes the purchase of Hamburg Süd was an opportunity Maersk could not say no to, adding how the timing was propitious as Latin America economies are improving.
The remaking of Maersk will take three to five years to accomplish, he said. The purpose of the transformation “is not to become a smaller company,” he stressed. “We want to get back to being a growth company again.”
Skou also said Maersk has gained about $100 million-$150 million of a $600 million goal from internal synergies.
By integrating its businesses, he said the company is moving more business through its container terminals, improving inland services, optimizing transshipment hubs, and having Maersk Line and its container manufacturing arm, Maersk Container Industries, jointly plan production.
The company has taken “baby steps” in cross-selling the services of Maersk Line, APM Terminals, Damco and Svitzer.
He pointed to deals with Amazon and Huawei, the Chinese telecommunications provider.
When pending merger deals are completed, the market share of the top five largest container shipping companies will have gone from about 27 percent two decades ago to 64 percent, Skou said.
Further consolidation is likely because of scale economics and because some carriers “are not generating a return and have to be propped up with new equity all the time,” he explained.
“We would also like to participate in that,” he said, but added how the company has to “integrate Hamburg Süd and demonstrate the business case” before making additional acquisitions.
The company may make targeted acquisitions, he said, that give Maersk specific skills or capabilities or technologies. These may be small in size.
Skou also said the company has become more financially disciplined and has reduced capital spending from about $7 billion to $8 billion annually to half that amount. That discipline, he said, was one of the reasons it was able to quickly raise the money it needed to buy Hamburg Süd.
The outlook for container shipping is stable demand growth because of global economic growth, which Maersk forecasts at 2 percent to 4 percent over the next three years. Last year, the company was surprised it was 5 percent.
The amount of containership capacity on order, he said, is at its lowest point since 2010, just 13 percent of existing world containership fleet capacity.
However, he said it is possible things “could get rocky” as more than half of that new capacity (218 ships) is scheduled to be delivered in 2018, and it is not known how many older ships will be scrapped.
Since announcing its plans to digitize its business a year ago, Skou said the company has gone from “fancy PowerPoint slides” to digital products being used by customers today.
These include its my.maerskline.com website, a global trade digitization joint venture with IBM, a remote container management product used by half of Maersk’s reefer customers, a predictive equipment maintenance product, a trucking procurement product called Spotlanes, and an electronic freight forwarding product developed by DAMCO called Twill.
Skou called 2017 a challenging year and said the company’s financial performance was impacted by the “NotPetya” cyber attack on Maersk’s IT systems last year.
He also said that with the elimination of weaker companies, it becomes more challenging for the company to meet its goal of having earnings that are better than its peers on a consistent basis.
Discussing the integration of Hamburg Süd, Arnt Vespermann, the CEO of Hamburg Süd, had said how the two companies were a “perfect fit.” Vespermann said both are very strong companies that provide first class products and services.
Maersk and Hamburg Süd are both more than a century old. Vespermann said they both come from “a family background,” which is important because they have pretty similar business ethics. While Maersk has a public float, it is majority owned by Møller family foundations and Hamburg Süd as part of the privately-owned Oetker conglomerate.
He said over the past two or three decades, about half of Hamburg Süd ’s growth has come from acquisitions and half from organic growth, with a focus on Latin America and other North-South trades, including routes to Australia, New Zealand and Oceania.
As a privately-owned company, only limited financial information was available in the past.
On Tuesday, Vespermann revealed that in 2017, excluding tramp business, Hamburg Süd had revenues of $5.4 billion compared with $5 billion in 2016, and that the company moved 2.34 million FEUs compared with 2.20 million FEUs in 2016. In addition, the company had earnings before interest and taxes of $80 million in 2017 compared to a loss before interest and taxes of $84 million in 2016.
The fact that revenues and volumes grew last year was significant because “customers were loyal and staff were, of course loyal,” Vespermann said. “We managed to keep everything on track and people gained confidence also because of the way the company has been integrated into the Maersk Group.”
Vespermann said Hamburg Süd aims to provide a personal touch to customers and has a higher share of cargo coming from beneficial cargo owners than other lines.
As the seventh largest carrier, Hamburg Süd had relied on many partners, but with the Maersk merger, “We have the possibility to build a joint network without being dependent on VSAs with third parties,” he said.
The company will increasingly have the ability to “lower transit times, because you don’t have that many interests saying ‘I want to call this port because I have a customer here, I need to stop there.’”
Søren Toft, the chief operating officer of Maersk, explained Hamburg Süd will be maintained as a separate brand.
It is “a company that has very loyal customers and serves their customers very well,” he said.
“What we are going to sprinkle on to that company is cost competitiveness by delivering the synergies and making sure that combined, we can deliver a product that is far more superior than Hamburg Süd can do on their own and that Maersk can do on their own in the areas that Hamburg Süd provides the critical scale.”
Maersk’s path towards global logistics integration
