The Danish conglomerate said at its 2016 Capital Markets Day presentation that it wants container shipping to once again become a growth business for the company, while APM Terminals will focus less on developing and more on filling up existing facilities.
Executives at A.P. Moller – Maersk on Tuesday expanded on their vision for the future of the company, saying they want container shipping to once again become a growth business for the company, while the APM Terminals business will focus less on developing new terminals over the next three years and more on filling up its existing facilities.
A.P. Moller-Maersk outlined its future plans during a meeting with investors at its 2016 Capital Markets Day presentation in Copenhagen.
The company first articulated its plans in September when it said the future of Maersk would be on container shipping, container logistics and container ports.
“We aim to create a strong integrated global logistics group that can help out our customers with connecting and simplifying their supply chains,” said Søren Skou, the chief executive officer of both the Maersk Group and Maersk Line.
The company said in September that over the next two years, it would work to separate out its four energy businesses – Maersk Oil, Maersk Drilling, Maersk Supply and Maersk Tankers. But until those businesses are separated, Skou said they will be managed as independent businesses. He said investment in the drilling, supply and tanker businesses will be limited and that Maersk Oil will focus more on its business in the North Sea.
He said Maersk Line wants to become a growth company again, increasing its market share both organically and through acquisition, and to become part of the consolidation in the container shipping industry.
Maersk took a major step in that direction earlier this month, he said, when it announced its plan to acquire Germany’s Hamburg Süd, a company that is strong in the Latin America and Oceania trades, and is heavily involved in the transportation of refrigerated goods.
Skou emphasized that Maersk does not plan to become a smaller company. The energy businesses it plans to hive off represents about a quarter of Maersk Group’s revenues.
The acquisition of Hamburg Süd will replace more than half of those lost revenues, about 15 percent of the 25 percent that will depart the group over the coming years.
Over the next three years, APM Terminals (APMT) will focus more on controlling costs and improving productivity and utilization of its container terminals, and less or not at all on “planting flags” by opening new terminals, Skou said.
“We have invested a lot on APMT in the last five years, now it is time to fill up the capacity we already have,” he said.
Skou noted how the Hamburg Süd business will deliver additional cargo volumes to APMT.
Also on Tuesday, APMT announced that it had entered into an agreement to divest Pentalver, the UK-based provider of container transport (trucking & haulage) and other container related services, to Genesee & Wyoming Inc. (G&W), a U.S.-based, global operator of short line and regional railroads. G&W is the parent company of Freightliner, the largest transporter and inland rail terminal operator for the movement of deep sea maritime containers in the United Kingdom.
G&W will pay 87 million British pounds, or approximately $110 million, for Pentalver, subject to final working capital and other closing adjustments. The companies aim to complete the deal in the first quarter of 2017.
Maersk aims to pay for the Hamburg Süd acquisition through synergies it will achieve from the combination of the networks of the two companies. Skou said Maersk’s 2M Alliance with Mediterranean Shipping Company has been very successful in taking out costs, and Maersk and Hamburg Süd should be able to use their combined buying power to reduce costs.
The five main businesses that the Maersk Group plans to retain are Maersk Line and its sister brands such as Safmarine, Sealand, MCC Transport, Seago (and Hamburg Sud if the acquisition is completed), APM Terminals, the forwarding and logistics company Damco, the tug boat operator Svitzer, and Maersk Container Industries, a manufacturer of dry and refrigerated containers.
Skou envisoned five areas in which they can achieve synergies: moving more Maersk Line containers through APM Terminals facilities, selling more inland services to customers to get containers to and from ports, optimizing transshipment hubs and operating them more like FedEx and UPS air cargo hubs, having better joint planning between Maersk Line and Maersk Container Industries, and doing more cross selling of services between Maersk Line, APM Terminals, Svitzer and Damco.
Skou said he wants to provide simple solutions to customers and their supply chain needs and “elevate the customer experience through digital innovation” by providing “online, 24/7 instant transactions.” He said the company also wants to offer the most competitive container transportation network.
Container shipping, container terminal and logistics is a big, nearly $1 trillion industry, said Skou and growing at about 3 percent annually, in line with the global GDP.
Skou argued that despite the large number of mergers in container shipping announced in the past year there is more consolidation to come.
Though by 2018 the five largest carriers will control two thirds of the market, “it is not yet a truly consolidated industry, We believe strongly that more is likely to happen on the consolidation front in the coming years as carriers continue to struggle with profitability, low growth and as the big carriers offer even more competitive products.”
Skou said there are about 18.5 million TEU of capacity deployed in the market, more than 1.5 million TEU of idle capacity and another 3 million TEU of capacity of ships on order.
With scrapping, Maersk projects capacity will still be 23 million TEU in 2022 capacity and that only 22 million TEU will be required. As a result he says neither Maersk, nor other liner operators have any need to purchase ships in the foreseeable future.
“For those who want to invest in our industry, merging, acquiring, buying existing capacity is the most rational thing to do,” Skou said.
He also says overcapacity in the terminal business is also affecting the terminal alliance.
Skou said that he expects “digitization” will change the shipping, ports, and logistics industry, that it will become more online, “self serve,” with less person- to-person interaction via email or phone calls. Costs will fall for shipping companies because customers will do more of the work themselves.
As a result he expects the “demarcation lines” between shipping lines, terminals, and freight forwarding companies will change and that these changes will “drive asset productivity.”
Skou said it was important for Maersk to become a cost leader in everything the company does, and price competitively. He said its business are not in “industries where you can differentiate yourself and charge a meaningful premium that can sustain a high cost culture.”
He said the company must also provide a “great customer experience” by leveraging insights across its businesses, offering superior products and digital interfaces.
A.P. Moller – Maersk discusses future of the company
