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Category: Global Supply Chain

Global Supply Chain News: Container Shipping Giant Maersk Going All in with Logistics Strategy

 

Plans Major Investment in Warehouses Across the Globe to Catch Up with New Rivals


Nov. 25, 2019
SCDigest Editorial Staff

SCDigest has reported several times on the strategy of Maersk – the parent company of Maersk Line, the largest ocean container carrier in the market – to become a provider of end-to-end logistics services.

Late last year, for example, Soren Skou, Maersk's CEO, said that "We are building a company that is a global integrator of container logistics – a company very similar to UPS and FedEx; and I hope they will be considered peers of ours when we are done with this transformation journey in three to five years; a network-based, asset-based global logistics company."

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Skou said during the call that he wants half of the company's income to come from non-ocean services over the next three years.


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In January of this year, container shipping sector analysts at Drewry said that both Maersk fellow container carrier CMA CGM were embracing an integrated logistics services path – and noted it won't be easy.

Drewry commented that carriers choosing this ambitious path are doing so after have already been through the economies of scale revolution – which did not deliver sustained profitability, noting that in a twist, "they now want to leverage their size by delivering service across more parts of the supply chain in a bid to claim more of the revenue and profits."

In November 2018, CMA CGM agreed to purchase the outstanding shares of global 3PL CEVA Logistics it did not already own.

Maersk's Skou made it clear in the company's Q3 earnings call that expanded logistics services was to be a core element of the company's strategy. That change in no doubt is driven largely from the fact that container shipping carriers find it almost impossible to make consistent profits, with many quarters of significant red ink, as capacity seems always well above demand.

Carriers continue to order more giant megaships, a real problem for the sector as global trade volumes are in general growing now more slowly than global GDP growth, when before the Great Recession global trade was often double the growth of the economy.

Maersk expects container shipper growth of about 2% this year, less than half the 4.5% seen in 2018. Meanwhile overall container shipping capacity will grow by 4%, according to data by Braemar ACM Shipbroking in London, exceeding demand growth yet again.

In the earnings call, Maersk said it achieved $1.6 billion in revenue from its growing Logistics & Services unit in the quarter, with the division also seeing profits grow 13.4%

Skou said during the call that he wants half of the company's income to come from non-ocean services over the next three years.

 

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"We need to grow in acquisitions on land warehouses and customs house clearing services," Skou said, adding that "We have invested around $1 billion already on the land side supply chain and we are looking to put in hundreds of millions more over the next year."

Maersk has about 100 such facilities currently, far below new rivals such as Kuehne + Nagel, Ceva, DHL Supply Chain and others. As part of this new strategy, Maersk is also committed to reining in its purchase of new ships."We are focused on our costs," Skou said on the earning call, adding that "We have a strict focus on capacity and network capacity."

Finance chief Carolina Dybeck Happe added that "there are no intentions now to invest in any large vessels."

She added that "We will, of course, at some point, need to replenish our fleet to maintain our competitive network," she said. But "new vessel orderings in the years to come will be to maintain the competitiveness," rather than to gain more market share in shipping.

Maersk has around 70,000 container shipping customers, only a small fraction of which use its logistics services currently.


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