With its announcement on Wednesday that it will revive the SeaLand brand to launch a niche intra-Americas carrier, Maersk took yet another step in redefining the container industry, saying in effect that this is no longer just one industry, but two: an east-west industry of big ships and heavy-volume trade lanes, and another serving niche trades where volumes and shippers are smaller and the market conditions are entirely different.
In communicating the decision to create a new carrier to serve the intra-Americas market, Maersk made clear that the two markets are fundamentally different, in terms of the average size of customer and local conditions such as port delays and infrastructure challenges that differ greatly between the developed and developing world. The announcement cast a spotlight on four existing regional Maersk-owned carriers that normally get precious little attention: MCC Transport, an intra-Asia carrier; SeaGo Line, serving intra-Europe routes; Safmarine, serving Africa; and Mercosul Line, serving Brazil.
With this so called “Intra-Trade” strategy of serving nich markets, “we have found that a dedicated single focus organization is the way to go,” Maersk Americas CEO Robbert van Trooijen wrote in a message to customers that was sent to the JOC. “We implemented this model in Asia in 2007 (with MCC Transport) and Europe in 2009 (Seago Line) and have seen significant strides in focus, growth and profitability. We are convinced that model holds a lot of promise for these markets in the future.”
He added: “Product differentiation plays an important role, as does the ability to manage the bottle necks and volatility that we observe in emerging economies.”
The contrast between this approach and the company’s approach to the east-west trades could not be greater. There the name of the game is low operating cost achieved by operating the largest possible vessels and keeping them filled. Thus Maersk’s participation in the proposed P3 Network, a mega-alliance of 255 vessels in 27 services in partnership with the second and third-ranked carriers by capacity deployed, Mediterranean Shipping Co. and CMA-CGM.
Van Trooijen framed the east-west and north-south markets as distinct, with the north-south markets representing 51 percent of Maersk’s overall business. “Maersk Line’s strategy has the objective of addressing the main challenges on east-west trades, including oversupply, limited trade growth and low profitability, amongst others, with the recent announcement of P3, while continuing to build scale and expand our product offering on attractive north-south trades.”
The announcement of the new SeaLand business and in some ways the coming out of Maersk’s duel approach to container markets coincides with an accelerating effort at the parent company AP-Moller-Maersk Group to narrow the focus of its business. In 2012 it declared itself to be in four core businesses, container shipping, marine terminals, oil and drilling. In 2013 it defined a fifth vertical called shipping and other services, which include tankers and the freight forwarder Damco. So far in January it has sold 15 supertankers and also its stake in a supermarket chain.
By including Damco in a business unit other than container shipping, the company formally separated itself from the now-discredited idea that a successful logistics business can be built off a container shipping base. Container shipping is in fact totally different from forwarding and logistics, as most carriers have come to realize. But it also raises the question of what the ultimate plans in container shipping are for a company like Maersk that has said that one way or another it demands to make a profit from a historically unprofitable industry.
Could it be that with its regional carriers managed as stand-alone businesses, that they too may one day be deemed non-core and sold? It was curious that Maersk said it was “spinning off” SeaLand, a term usually reserved for sales of divisions. Just as Maersk and many other carriers have long ceded the smaller shipper business to non-vessel-operating common carriers, preferring instead to build scale as a route to profitability, could the regional carriers be viewed as quasi-NVOs not compatible with mega-services like Asia-Europe and the trans-Pacific and the major customers that dominate those trades?
That is in the future.