How far is Maersk on its journey to become an integrator?
COPENHAGEN : Maersk is one of the biggest and well-known names in shipping, but sees its future as integrator providing full end-to-end freight logistics solutions rather than simply a point-to-point container line.
“Our view is that today’s supply chains are underserved. So, the way that supply chains have operated over the last number of decades is no longer fit for purpose,” Ditlev Blicher, President of Maersk Asia – Pacific region, told a media briefing in Singapore this week.
Certainly, Covid highlighted the vulnerabilities of the supply chain, at a huge financial benefit as it turned out to container lines as Maersk’s 2022 financial results underscore, but the Danish’s company’s plans to become an integrator pre-date the pandemic by several years.
The move to becoming an integrator has though accelerated during the pandemic and billions of dollars have been invested by Maersk acquiring companies such as LF Logistics, Senator, and Pilot.
Maersk is hardly the first container line to try and make a major breakthrough into the logistics space. However, building up a third-party logistics (3PL) capability has always been fraught with the difficulty of competing with your own customers as many 3PL providers are also major buyers of container shipping space.
Maersk though sees itself as doing much more than building a 3PL capability, as Christopher Pollard, Regional Head of L&S for Maersk Asia-Pacific region, explains: “I read an awful lot externally about what Maersk is trying to do and most of that resonates to competing with or comparing to other forwarders or other 3PL contract logistics companies. And sometimes I understand why that might look like that’s what we’re trying to do.”
But we’re not here buying LF because we want to become another 3PL offering contract logistics, it is part of our journey to get to the integrated value proposition – Christopher Pollard, Regional Head of L&S for Maersk Asia-Pacific region.
The statement begs the question of what Maersk is trying to achieve, and for this Blicher draws on the example of the air express industry as an integrator. For example, sending a document with FedEx from Singapore to Buenos Aires, the customer might choose a three-day service, and the document is picked-up. “More often than not, you just know that that’s going to be delivered within three days. You have no idea what the routing is, you have no idea whether that’s going through Memphis and whether it’s going through Liege, and who’s picking it up,” Blicher says.
However, even if there is snowstorm at one the providers hubs or another adverse event the document is delivered as planned. “But what happens, your documentation is that network flexes to still deliver the outcome that you bought. And as a customer you can rely on what you bought that is going to be delivered, and there are no surprises on the costing side. This is what we’re trying to build.”
The difference is Maersk wants to be an integrator for not just documents but all kinds of goods and cargoes that fit with its container shipping network.
Now it’s worth noting in that integrator space DHL Global Forwarding for example handles 3.1m teu annually, however, it does not have its own ocean shipping capacity and capability. Maersk is also much larger in the ocean freight business handling 11.92m teu last year.
Pollard describes the journey Maersk is undertaking as “massive” and “unparalleled” with the most critical paths being physical and digital.
So where is Maersk on this journey? Blicher estimates they are around 40% of the way there. This figure refers to the overall integration and does not for example mean that the company needs to make acquisitions to equivalent of a 60% growth of business or capital expenditure. He says the plan has been accelerated over the last two years and it is now ahead of where it planned to be.
Blicher notes that it wasn’t hard to make money in container shipping over the last two years and basically just needed something that could float and carry a container. But it will be much more difficult as the market comes down. “Now real value to the customers matters. We’ve taken the opportunity over the last 12- 24 months to look at our client relationships. We have completely reframed our contracting with our customers. The degree to which we are taking long term views and value contribution with our clients is a completely new way for us.”
Maersk is most traditionally well-known for its international transport network and is now focusing on building other networks. For example, in consolidation Pollard notes they have fairly mature consolidation network in certain markets, however, needs to expand in other markets. “We have deconsolidation in some markets, especially in North America a mature consumer market, but we don’t have deconsolidation networks at strengthen in Asia. So, there are all different parts of these networks where we either have to augment what we have, or we have to build the scale and the capabilities in new markets.”
It is also building out technology that can alter routing of shipments in case of an adverse event of the kind seen in the e-commerce industry but not the 3PL environment.
The capabilities that Maersk requires will in some cases be acquired in others it would work with partners. For example, Maersk realised that building a consumer logistics capability in Asia would take too long and as result took the opportunity to acquire LF Logistics when the opportunity arose.
Ocean network agility
When it comes to Maersk’s core ocean shipping network, today still by far its biggest revenue generator, the stress is on agility to fit with the vision of intergrated transport the company is trying to build.
“What we’re doing right now with our ocean design is fundamentally changing how this operates to build agility into our ocean network. So as opposed to building fairly static ocean networks that are designed once or twice a year, and maybe some fine tuning [inbetween] we’re building it to be constantly agile,” Blicher says.
Flexibility was something Maersk stressed in its announcement last month that it would disbanding its 2M alliance with MSC by 2025. There has been speculation that Maersk will choose to go it alone on a global scale to achieve the agility it is looking for in its plans as integrator. However, there are also questions of scale, a report by Sea Intelligence shows that on the Transpacific trade Maersk on its own would have the smallest capacity market share of 10%, alongside MSC, The Alliance, and the Ocean Alliance.
Blicher is confident however that Maersk has sufficient ocean capacity to achieve its goals. “We have seen, and our premise is, that we actually have enough ocean capacity to serve our clients today. What we would get from acquiring significant new capacity our clients wouldn’t pay for it. At the end of the day is not driving additional value.
“What we need to do and what we’re investing in, is actually building quality. And whereas the 2M relationship has been excellent, they’ve been a great partner for us, we are changing we are building for quality, and we need to control our network. We can design a network for agility.