Maersk’s Damco move ups threat to digitally deficient NVOs, carriers

Maersk’s Damco move ups threat to digitally deficient NVOs, carriers

By integrating Damco

The merger of Damco into Maersk, with the world’s largest ocean carrier folding Damco’s forwarding services into its own offerings, is poised to disrupt the shipping and logistics industries. 

By combining, Maersk plans to provide an “end-to-end logistics solution,” and if successful, is poised to gain enormous advantages over competitors. It may be too early to call Maersk the Amazon of the supply chain, but this takes them a major step closer. It’s time for other carriers to consider building out their own end-to-end offerings if they want to compete with Maersk.

Ironically, Maersk's move comes as a way to keep huge customers such as Amazon and Alibaba out of the logistics industry themselves. “If we don’t do our job well, then there’s no doubt that big, strong companies like Amazon will look into whether they can do better themselves,” Søren Skou, A.P. Møller-Maersk CEO told Bloomberg News in 2018. 

Typically, importers must juggle a wide range of logistics companies — carriers, customs brokers, freight forwarders — to ensure the delivery of a single shipment. Damco already managed all those relationships on behalf of their customers' supply chains. As a result, it can provide a seamless experience for their customers — and a single point of contact for all parties.

By integrating Damco's logistics offerings, Maersk hopes to reach its customers directly, simplify their operations significantly, and eliminate the need for intermediaries such as freight forwarders. 

Competitors will need to adapt

There are a number of reasons that the Maersk-Damco combination is likely to change market dynamics significantly. For example, will Damco’s current customers still be able to book with other carriers? Will Maersk’s new forwarding platform ever engage the services of, say, Mediterranean Shipping Co. or Hapag-Lloyd? And of course, Maersk has the potential to wrestle business from other carriers that are slow to provide their own end-to-end platform.

Some of the market advantages from which Maersk will profit without a vigorous response from others in the industry include: 

  • Pricing advantages: As the largest ocean carrier in the world, Maersk enjoys economies of scale that will allow them to keep prices as low as possible. By getting into the freight forwarding business, Maersk may also be able to place downward pressure on the prices charged by its other logistics companies.

  • First-to-market: Maersk is the first major ocean carrier with plans to offer this kind of end-to-end shipping-plus-logistics service. As a result, Maersk stands to capture margins along the entire logistics value chain.

  • Access to Damco's current customers: Damco has a large roster of its own customers, and they can now use those existing relationships to steer shipping contracts to Maersk. 

Forwarders have to rethink their digital strategy in light of this market development.

“The asset-heavy strategy has played out favorably for ocean carriers,” said Philip Blumenthal, a former vice president of sales and operations at Freightos, a veteran of DB Schenker and Dachser, and now an advisor to industry startups. “They are now able to redefine the market. The opposite strategy is to go digital, which is adding value by offering intelligence. Connecting data to provide the shippers control over their supply chains was a niche 4PL play. It may become the main market for forwarders that have created margins through arbitrage business in the past.”

Considering Maersk's current market dominance coupled with this new offering, other logistics businesses must aggressively innovate if they want to survive and thrive. 

Roger Crook, CEO of digital customs broker Zeus Logics and former global CEO of DHL Global Forwarding, can be reached at rc@zeuslogics.com.