Maersk CEO Soren Skou spelled out his plan for the group to become a global integrator of container logistics with customers using its online platforms to find prices, arrange all documentation, and pay for shipments in one place.
But one year into the journey towards this new strategy, Skou admitted at Maersk’s capital markets day in Copenhagen that transforming the company from a widely strung conglomerate to a business focused on container shipping, ports, and logistics was “pretty complicated.”
“We want our customers to be able to deal just with Maersk. We want to carry the box from one port to another, we want to provide the inland service, we want to provide customs house brokerage, finance the goods, insure the goods, consolidation, and whatever other services that may be relevant for our customers,” he said. Within Maersk Group is logistics unit Damco, carrier Maersk Line, and port operator APM Terminals.
Skou drew parallels with this strategy and the business of UPS and FedEx and DHL in the courier and express package industry. “We are building a global integrated company very similar to UPS and FedEx and I hope that they will be considered peers of ours when we are done with this journey in three to five years. Because that is an industry where you deal with just one party if that is what you want to do when you ship your goods. We want to digitalize the transactions with our customers as much as we possibly can, enabling the customers to self serve when it comes to getting price quotes, getting bookings, to uploading documents, and paying the bill.”
The Maersk head gave a frank view of container shipping that despite the relatively low cost of transporting goods was perceived by customers as being difficult, complicated, and frustrating. “We truly believe we can do a better job for our customers, and we launched this vision of becoming a global integrator, connecting and simplifying our customers’ supply chains,” he said.
It is an ambitious goal and one that is strongly tied to technology, with its success requiring that the new transport and logistics company transform itself digitally. “We need to built the digital front end to run our business, we need to build the digital tools that will help us optimize the way we run the business on a day-to-day basis, how we optimize asset productivity, and we have to build the digital model to allow us to drive new revenue sources for the future.”
Part of the digital strategy involves blockchain technology, and Maersk Line and IBM have created a joint venture aimed at providing the container shipping industry with a blockchain "pipeline" where other carriers, terminals, freight forwarders, railroads, and others submit cargo movement information to provide shippers with an end-to-end record. The aim of blockchain is to digitalize the complex paper trail involved in the global supply chain, and IBM and Maersk estimate the initiative could save the industry billions of dollars.
Since announcing the new integrated strategy in late 2016, Maersk has involved $14 billion in merger and acquisition transactions, selling Maersk Oil and Maersk Tankers and acquiring Hamburg Süd in little over a year.
“We want to shrink so that we can grow,” was how Skou explained the unbundling of the energy business. He said the internal synergies of the “new Maersk” were already at $100 to $150 million and the group was on track to achieve the $600 million in internal synergies that Skou promised shareholders a year ago.
Maersk Line reported a $541 million profit in 2017, with the impact of a mid-year cyber attack, rising fuel prices, and industry overcapacity seeing the carrier falling short of its $1 billion profit improvement target.
Skou was also upfront about the difficulties in charging more for a premium service. “We need a network that is cost competitive, because in our industry the likelihood that we will be able to create a service offering that is so good that we can charge a meaningful premium and sustain a high cost culture is simply not realistic,” he said.
Maersk tried a guaranteed day, premium service on Asia-Europe with its Daily Maersk offering a few years ago, but it failed to resonate with shippers. The feeling was that if carriers simply adhered to their contracts and delivered containers on time there would be no need to offer premium services.
“In the long run, in our industry, lowest cost will win,” Skou said. “The way to build up margin difference and maintain it is to have lower costs than the competition. We are a scale-based industry and we have done that in the past and should be able to do that again in the future. If we get it right it will help us drive higher level returns, less volatility, and less reliance on container freight rates between Shanghai and Rotterdam.”
The Maersk CEO also maintained his positive outlook for the container shipping industry, saying the fundamentals continued to be the best they have been in a decade with broad based and strong global economic growth. “Europe is doing well and the US will continue to do so. The commodity-based countries are also growing again because commodity prices have come up and costs have come down. Oil at $65 a barrel today is good for those economies and that drives container demand.”