Maersk Line is closing 2011 much as it started the year, lobbing another bombshell onto a container shipping business engulfed by tumbling freight rates and soaring losses over the past 12 months.
Still wrestling with Maersk’s double-barreled salvo of ordering 20 of the biggest ships in history, followed quickly by the launch of a guaranteed Daily Maersk service in the Asia-Europe trade, rivals now are pondering the impact of the sudden resignation of the strategy’s brainchild, CEO Eivind Kolding.
Kolding’s initiatives were the catalyst for a recently unveiled alliance between Maersk’s closest rivals, CMA CGM and Mediterranean Shipping, that likely will ratchet up the ongoing rate war between the industry’s top three carriers and drive smaller lines from key trade lanes, including the world’s largest: Asia-Europe.
Last week’s announcement that six carriers grouped in the Grand Alliance and New World Alliance — APL, Hyundai Merchant Marine, MOL, Hapag-Lloyd, NYK Line and OOCL — are pooling 90 ships in nine services covering more than 40 ports in Asia, northern Europe and the Mediterranean also can be traced back to Kolding.
So, will Kolding’s departure to the CEO’s chair at Danske Bank, Denmark’s largest financial institution and 23 percent-owned by Maersk parent A.P. Moller-Maersk, undermine the evolving strategy to remain the world’s No. 1 carrier?
Don’t count on it. A seamless handover on Jan. 16 to Soren Skou, CEO of Maersk Tankers for the past decade, will ensure Kolding’s legacy and goals remain intact. The CEO designate is a 30-year Maersk veteran, having joined the company as an 18-year-old trainee, and a 10-year veteran of the container shipping business, with time in Copenhagen, New York and Beijing. He is also chairman of the boards of Damco, A.P. Moller-Maersk’s logistics arm, and Maersk Container Industry, the container manufacturing unit.
Skou, 47, also has been bloodied by a slump in the tanker market this year that eclipses even the downturn in container shipping. That torrent recently prompted Maersk Tankers, Samco Shipholding and Ocean Tankers to pool their 50 very-large crude carriers.
As Maersk’s next CEO, Skou has two key goals: defending the carrier’s industry-best global market share and finding new costs to cut.
Skou exudes a quiet confidence about Maersk’s ability to take on the competition in what is likely to be an unstable 2012 for container shipping. Maersk, he says, “has the strength to win in the container market … in the ongoing rate war” because it has become extremely cost-competitive in the past three to four years and is delivering new services such as the Daily Maersk, which differentiates its service from its competitors.
And, although Maersk will maintain its focus on costs, “there are no plans to shrink the business,” says Skou, who led the A.P. Moller-Maersk group’s cost-cutting programs in 2009 and 2010.
Skou’s most immediate task is to finesse the 70-ship Daily Maersk operation, now into its eighth week. Maersk already has decided to fold its ICON Indian subcontinent-North Europe service into the Daily Maersk “conveyor belt” in early 2012, in essence reducing capacity on the route. It also will add Le Havre, Zeebrugge and Hamburg to the Daily Maersk in mid-February, offering shorter transit times and increased reliability. But those calls will not offer the money-back guarantee for on-time delivery available on shipments linking four Asian ports — Ningbo, Shanghai and Yantian, China, and Tanjung Telepas, Malaysia — with Bremerhaven, Felixstowe and Rotterdam.
The carrier also is working on a new Asia-Mediterranean service for 2012.
Skou has a 10-week window to iron out any hitches in the Daily Maersk before the CMA CGM-MSC partnership kicks in — if there are hitches, that is. The carrier says the Daily Maersk’s reliability has matched the 99.4 percent availability rate on cargo since the first cutoff date on Oct. 24.
Maersk was also the most reliable carrier in November, hitting 75 percent of its targets compared with an industry average of 63 percent, according to industry consultant SeaIntel. And Maersk topped 95 percent reliability on the Asia-North Europe route, well ahead of second-ranked NYK and OOCL.
Skou can thank Kolding, 52, for taking over a carrier that’s much closer to its customers, having won back trust lost in the bungled integration of P&O Nedlloyd during his five years at the helm. Skou also inherits a carrier much leaner than five years ago, even if there’s room for further cost-cutting initiatives, such as the October decision to fold sister line Safmarine into Maersk Line with the loss of some 240 jobs.
Kolding’s lasting contribution to a more competitive Maersk will be even more evident after 2014, when new ships capable of carrying 18,000 20-foot equivalent container units join the fleet. Maersk’s argument that the new vessels will enjoy 26 percent lower unit operating costs than 15,500-TEU vessels underscores the carrier’s ability to leverage economies of scale to make a profit on much lower rates than its rivals.
But until their arrival, Skou will face a tough battle in the make-or-break Asia-Europe trade lane. Maersk holds an industry-leading 26 percent of capacity in the trade, compared with the CMA CGM-MSC alliance’s 22 percent. But Maersk’s lead will shrink through 2012 because it isn’t adding any new ships, while the Franco-Swiss partnership will add 21 vessels exceeding 13,000 TEUs. The Grand Alliance-NWA partnership, dubbed the G6 Alliance, also will be a tougher competitor than the individual lines in the two alliances.
Skou also will take over at a grim time for the industry, with most carriers likely to close the year in the red. Maersk itself swung to a third quarter loss of $297 million from a $1 billion profit a year earlier as it lost $124 on every 40-foot container it transported.
Skou welcomes consolidation via takeovers or partnerships like the CMA CGM-MSC partnership as a way to return an industry marked by overcapacity to decent returns. He won’t comment on Maersk’s likely role in consolidation but says the 18,000-TEU ships “give us a substantial competitive advantage over the longer term,” meaning the carrier has less need to take over rival lines.
To date, no other carrier has ordered 18,000-TEU ships; CMA CGM has come the closest with three 16,000-TEU vessels.
As the industry braces for a volatile 2012 — several carriers already are seeking capital injections from shareholders, courting new investors or partners, or even looking for ways to quit certain trade lanes — Maersk Line appears more apart than ever from the industry average.
Thanks to Kolding’s bold moves in 2011, many lines are reconsidering their strategies. They include Taiwan’s Evergreen, which may overcome its aversion to big ships and order 10 14,000-TEU vessels, or Singapore’s NOL, which may be tempted to hack through Hapag-Lloyd’s complicated shareholding structure to make a fresh bid for the German carrier. Asian carriers such as OOCL, Hanjin and Hyundai also face tough, costly decisions over their long-term future in the Asia-Europe trade as they, along with Japanese lines, risk being squeezed in a battle between Maersk and the CMA CGM-MSC alliance.
But if 2012 brings a long feared war of attrition, Maersk can count on the deep pockets of its diversified parent to hang in until the armada of bigger behemoths changes the economics of Asia-Europe service.
These are things Maersk’s competitors just don’t have in their armory as the Copenhagen carrier sets its sights on achieving an operating margin 5 percent above its peers.
Kolding, meantime, may be watching with something like more academic interest. As the new chief of Danske Bank, he’ll be running a company whose largest shareholder, with a 22.8 percent stake, is A.P. Moller-Maersk.
Contact Bruce Barnard at email@example.com.