Maersk Line (UN)Limited
U.S. unit invests in ships, expands into new areas.
By Chris Dipin
When the containership Maersk Alabama was attacked by pirates in April and its captain Richard Phillips held hostage, Maersk Line Ltd., the U.S.-flag arm of the A.P. Moller – Maersk group, was thrust into the spotlight.
While it is only a small part of the overall operations of A.P. Moller – Maersk, a company that had revenues of $61 billion in 2008, Maersk Line Ltd. is a large enterprise in its own right. It has revenues of about $1 billion, and about 200 shore-side employees, most of whom work at its headquarters in Norfolk or in Arlington, Va. That's in addition to about 1,000 seafarers scattered around the world on any given day. Different workers may rotate through each job several times in the course of a year.
Those mariners work on a diverse group of ships. These include 24 containerships used in regularly-scheduled liner services to the Middle East, North Europe and Asia, as well as two feeder services in the Middle East and East Africa. While integrated with A.P. Moller – Maersk's regular liner services, they are heavily used to transport military or other government-impelled cargo such as food aid.
Maersk Line Ltd. also operates non-containerships ' two roll-on/roll-off ships, three breakbulk ships, and two tankers ' as well as a variety of cargo and specialized ships for the U.S. Maritime Administration and the Navy's Military Sealift Command.
While most of Maersk Line Ltd.'s revenues come from ship operations, the company created a Maritime Technical Services unit that assists the military and other government agencies with maintaining, operating or acquiring new vessels. With the military looking for ways to control expenses by adopting practices from the commercial shipping world, the carrier believes this unit can be a growth opportunity.
While it is a subsidiary of a Danish company, Maersk Line Ltd. (MLL) is incorporated in the United States and is able to operate and manage ships for the Military Sealift Command (MSC) because it holds a special security agreement with the Defense Department. As part of the agreement, the company's board of directors and senior management are composed entirely of U.S. citizens.
A company spokesman said the firm has 'instituted corporate processes and infrastructure that are separate from A.P. Moller to ensure MLL's corporate independence. It submits to regular inspections and audits from the Defense Security Service, and it holds a corporate top security clearance from the Defense Department and allows it to operate the special mission ships for the MSC.'
A.P. Moller – Maersk has a long history of working with the U.S. government. During World War II, on the eve of Germany's occupation of Denmark, the company told its ships to report to its New York office. From there they were operated by a young M'rsk Mc-Kinney M'ller (now 96), then taken over by the U.S. government in June 1941.
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'We are all pretty energized about what we do at our company,' said William Kenwell, senior vice president and chief commercial officer for Maersk Line Ltd. 'We are also proud of what we do because we are here to support the U.S. government and there is a great deal of satisfaction of being able to help our troops all around the world. Personally I get a little bit emotional about it.'
Earlier this year the company completed a program under which it invested nearly $400 million to purchase and reflag nine foreign-flag ships and swap them with older and smaller ships in its fleet. The nine new ships have an average age of 10 years and average capacity of 4,000 TEUs, replacing vessels that on average were 23 years old and carried only 3,400 TEUs. The older ships will be recycled.
'Overall it will improve the services to the U.S. government customer as well as the commercial customers that ride on those ships for Maersk Line,' Kenwell said.
'It's perhaps the largest initiative we have ever had since we moved into the Maritime Security Program,' he said. Maersk Line Ltd. operates 26 of the 50 ships in the MSP program, under which the government provides a $2.9 million subsidy per ship so that it has a fleet of militarily useful vessels. Participating operators are required to make the ships and commercial transportation resources available upon request by the defense secretary during times of war or national emergency. The ships are also part of the Voluntary Intermodal Sealift Agreement. (U.S. affiliates of other foreign companies are also big players in the MSP and VISA programs.)
Services. The company's containerships are integrated into its commercial services, with Maersk Line Ltd. bidding for military and other preference work, and commercial cargo handled by the international arm.
The company has four major liner services:
' TA2, a string of five U.S.-flag ships deployed in a weekly service between the U.S. Gulf and East coasts and North Europe.
' TP-5, a five-ship string (four U.S.-flag), which operates in a weekly rotation between the West Coast, Alaska and ports in Japan and Korea.
' The MECL-1 and MECL-2 strings that operate between the U.S. East Coast and Middle East and Indian Subcontinent. The MECL-1 uses seven U.S. ships and offers weekly U.S.-flag service. The MECL-2 uses 10 ships, half of which are U.S.-flag vessels.
Maersk Line also operates two U.S.-flag feeder services tied to the MECL services. One is operated by the Maersk Alabama, and ferries cargo from Salalah to ports in East Africa, such as Port Sudan, Mombasa in Kenya, and Dar Es Salaam in Tanzania. The other feeds cargo delivered from Jebel Ali in Dubai into Arabian Gulf ports, such as Jubail in Saudi Arabia, and Shuaiba and Shuwaikh in Kuwait.
Most of the cargo moving on these U.S.-flag ships is military or other government-impelled cargo, while most of the cargo moving on the non-U.S.-flag MECL-2 ships is non-flag-impelled.
Cargo moving to Afghanistan is delivered directly by the MECL-1 service to Port Qasim, Pakistan, then moved into Afghanistan by truck, primarily through two border crossings, one in the South, Chaman, the other in the North, Torkham.
But in recent months, Maersk Line has seen the military begin to take advantage of what it calls its Northern Distribution Network to get supplies into Afghanistan. A.P. Moller – Maersk has owned and operated the Trans Siberian Express Service (TSES) since 2000. Northern Distribution Network cargo moves through Uzbekistan on rail; is discharged from rail in Afghan, and then trucked.
'This gives the U.S. military an advantage in that their supply line so they don't have to rely on one specific port of entry and border crossing,' Kenwell explained.
While A.P. Moller – Maersk operates the railroad, the United States had to negotiate permissions from many governments to allow the movement of military cargo along the routes.
The military can take supplies from warehouses in Europe, move them to the Baltic Sea port of Riga in Latvia, then via rail through Russia, Kazakhstan and Uzbekistan, where it can then be trucked into Afghanistan. Cargo could also be railed from ports such as Rotterdam or Bremerhaven, but Kenwell said that moving it through Latvia simplifies things because the railroads in the former Soviet Union use a wider rail gauge than European railroads.
Cargo can also be moved into the Northern Distribution Network through Poti, Georgia, on the Black Sea. This is an unusual routing ' cargo must be moved across Georgia, then Azerbaijan to the port of Baku where the rail cars are put on ferries to cross the Caspian Sea. Then they are moved through Kazakhstan and Uzbekistan before the cargo is trucked into Afghanistan. Maersk Line Ltd. is working with the government to examine other gateway options. One possibility is using a Pacific Ocean port, another includes transit through Tajikistan.
'There is tremendous growth in U.S. forces in Afghanistan so it is incumbent upon the U.S. military to have multiple gateways,' Kenwell said.
In addition to its container services, Maersk Line Ltd. operates three multipurpose ships to move food aid, military cargo and project cargo.
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Fred Finger, senior director of ship management and chartering, said the company operates the breakbulk ships in a liner-like schedule, primarily to ports in East Africa and the Red Sea, but will call on inducement to ports in West Africa as well. They move a mix of cargo, everything from high value ores to generators, boats, and trucks.
Several years ago when the U.S. military decided to boost the ro/ro capability in the Military Sealift Command fleet, Maersk acquired two pure car-truck carriers that were reflagged and are now operated in a partnership with the H'egh affiliate Alliance Navigation. Alliance handles the commercial sales and Maersk Line the military sales. With the downturn in the auto industry, Finger said a higher percentage of the cargo they carry has been flag-impelled.
Maersk Line Ltd. also has two tankers that operate in the Far East and Middle East, mostly carrying fuel for the military under short-term time charters and voyage charters.
The company also manages a variety of 'gray bottom' ships for Military Sealift Command and MarAd. They include eight fast sealift ships scattered in pairs at four ports around the country ' Philadelphia, Baltimore, New Orleans and Alameda, Calif. ' that are empty, but kept on stand-by crews, ready to be loaded and underway in four days in the event of a national emergency, said Scott Cimring, senior director of government ship management for Maersk Line Ltd.
These ships were originally built as the SL-7 containerships by Sea-Land Service and converted into ro/ro ships by the military. Powered by steam turbines, they are among the fastest containerships ever built, but at 40 years of age, Cimring said, there have been some discussions about their eventual replacement.
Maersk Line Ltd. has also operated 'prepositioned' ships that are loaded with vehicles, ammunition or other defense materiel, which are kept in locations such as Diego Garcia and Guam. This summer it is returning some of those ships to the military and bidding on new contracts that the Navy is letting.
Security. The company also provides crews for 'special mission ships' ' two missile tracking and five T-AGOS ocean surveillance ships to track submarines. Operated by the Military Sealift Command, Maersk Line Ltd. manages the ships under the direction of the Navy, and its personnel operate the ships and provide a platform for the specialists who are performing the intelligence work.
Some of these ships carry out sensitive work, and mariners working on them may need special security clearance and some officers may undergo special training such as small arms certification.
But the military is in charge of protecting the ships, and may put a military protection force on board if it feels it is necessary.
But Maersk has not historically put any security teams on its commercial ships, such as the container vessels that bring cargo to the Middle East or feeders like the Maersk Alabama.
In wake of the Maersk Alabama attack and revenge threats after three pirates were shot dead by Navy SEAL snipers, the Coast Guard established new maritime security regulations that involved creating new vessel security plans.
Maersk Line Ltd. has taken a variety of steps to 'harden' its vessels ' physical modifications, such as adding concertina wire and flanges to make it more difficult for pirates to climb on board using grappling hooks or ladders; and operational steps such as increasing speed, and adding lookouts when in dangerous waters.
But Kenwell said the company does not support arming the crew. 'They have jobs to do, they are not trained. We believe the ideal solution is that the U.S. military or Coast Guard would put security teams as deemed necessary on vessels that are considered at high risk,' he said.