The other shoe is about to drop in Copenhagen. Early in the new year, Eivind Kolding, chief executive of A.P. Moller-Maersk's container business since the company restructured its top management last June, will implement his own reorganization. He says the aim is to cut bureaucracy, improve efficiency and boost profitability.
"We are working on a new strategy aimed at reducing the complexity and enlarging the focus on the various businesses that we have," Kolding told The Journal of Commerce. He said the container business will be reorganized into three stand-alone divisions.
Maersk Logistics, which now falls under Maersk Line, will be split off as a separate division. Other container-related businesses, including trucking, railways and the container repair and manufacturing business, will be grouped in a new division. "Until now we have operated these businesses in an integrated fashion, but that has added a lot of complexity to the way we operate," Kolding said. "So, by splitting it up, we get a stronger focus on each business and reduce complexity."
He said the company is not preparing to sell any of the divisions.
The daily management team of the container business will be reduced from nine people to seven, and four executives will be shifted off the new team. Kolding said those executives have been offered other positions, but that one official has chosen to resign.
The reorganization comes after the container business eked out a net profit in the first nine months of 2007, after reporting a substantial loss in the previous year. "Of course, annus horribilis was 2006," Kolding said, quoting Queen Elizabeth II. "We seem to be moving on the right track now, and 2007 will be at least about $1 billion above what we saw in 2006. It's quite a substantial improvement." The Danish company's container business reported a loss of $568 million in 2006 after a profit of $1.3 billion in 2005.
Kolding said Maersk Line's employees have been "frustrated" by the setbacks the company has had. He thinks those problems have been solved. "On the other hand, we see that we have quite a task ahead of us to get up to the level where we think our results are satisfactory," he said. "We have quite some way to go." He said Maersk Line will not get to that level in 2008. "Our aspiration is to get there in 2009."
The company has started to achieve improved results by concentrating on better yield management and cutting some routes. "But we still believe we have more to do, so yield management and high utilization are very much in our focus," Kolding said. He added that Maersk Line turns down cargoes that don't yield a profit. "We are always turning down loss-giving cargo," Kolding said. "We are more critical in that respect and more conscious of the cargo that we do accept."
Kolding said the integration of P&O Nedlloyd into the Maersk Line organization and fleet network has been fully digested for some time, "but we've had issues more inherent in our structure that we need to deal with." He said the 2006 acquisition of P&O Nedlloyd had given Maersk additional routes on the trans-Atlantic, "which has not been a winner for us in recent years."
But he added, "We've had more issues with the trans-Pacific. It's larger, and we're struggling more with that." He said he does not want to make any more reductions in the trans-Pacific. "We did right-size that at the beginning of the year, and we certainly want to protect our position there," Kolding said.
Under Kolding's leadership, Maersk Line over the past few months has slashed capacity in the trans-Pacific by 30 percent, cut some of its trans-Atlantic services and reduced the number and complexity of its inland intermodal delivery points.
The first news of Maersk's reorganization came in a letter Kolding had sent to his senior management staff on Dec. 2 that was reported to the Financial Times. In the letter, he said some of Maersk Line's competitors were better at attracting high-value cargo and enjoyed higher utilization rates. The letter said that if Maersk Line had the same cost structure, types of cargo and utilization rates as APL Ltd. over the past three years, it would have made more than a $5.5 billion profit, instead of its actual $2 billion. Kolding said his comment was not that Maersk Line should try to follow the APL model for growth, but rather to create its own model.
Maersk's reorganization had been widely anticipated in the container industry. It was apparent that Kolding was not appointed the container division's sole chief executive just to conduct business as usual when that business had been losing money since the acquisition of P&O Nedlloyd.
"You can't expect the oil and gas division to go on subsidizing it forever," said Jette Clausen, A.P. Moller-Maersk's group vice president and head of group communications. She also said the company, which has been reporting its financial results every six months, would henceforth report results on a quarterly basis.
The container division's pretax earnings swung into a profit of $626 million in the first nine months of this year, compared with a $126 million loss a year earlier. Net profit was $25 million in January-September 2007, compared with a $698 million loss a year earlier. "That in itself gives some motivation to all of us. We're not where we need to be. We need to make far better results than we have. We do think we are on the right track," Kolding said.
Nils Andersen, who became the new chief executive of A.P. Moller-Maersk on Nov. 5, termed the latest result "still far from satisfactory." Andersen came to the company from Danish brewer Carlsberg, where he had been chief executive since 2001. He took over from former CEO Jess Soderberg, who is retiring a year early.
Soderberg's goal for Maersk Line had been to expand its market share, which was a reason he championed the $2.7 billion acquisition of P&O Nedlloyd, but the carrier has lost market share ever since.
Kolding, while stressing that he intends to keep Maersk Line's position as the largest carrier, has de-emphasized market share in favor of improving the profitability of individual trade lanes. "It's true that we are focused more on yield management, but we will still grow," Kolding said when he was named the carrier's sole chief executive. "We will still grow volumes, but less than the overall market." He said Maersk Line's market share is expected to diminish this year and probably again next year, "but we will still grow again by adding quite some tonnage to our network."
Maersk Line now controls a global market share of 16.1 percent, compared with 18.2 percent on Jan. 1, 2006, and 16.8 percent on Jan. 1 of this year, according to AXSLiner. By contrast, the next two largest carriers, Mediterranean Shipping Co. and CMA CGM, have been gaining market share. MSC, which had an 8.6 percent market share on Jan. 1, 2006, now controls a 10.5 percent share, and CMA CGM's share has risen from 5.6 percent to 7.4 percent in the same period.
"We certainly want to keep our leadership position," Kolding said. "The focus in the short term is that we get more efficient, more profitable and create a more robust platform. But over time, I certainly think we should keep our position and grow market shares. But in the short term, the focus is different - improving profitability."
Peter Leach can be contacted at firstname.lastname@example.org.
Readers of the digital edition of the JoC who want more information can click on: