Thirty years ago, following the invention of double-stack container trains, ocean carriers launched their own branded intermodal services in collaboration with the railroads. The idea was to provide shippers with a single bill of lading that combined water and land transport to the consignee’s door, all under the lines’ direct control.
That idea worked for a while. After a few years, however, shipping lines began shedding intermodal assets, vowing to focus on their core capabilities, and leaving the land portion of the move in the hands of the railroads, independent stack-train operators and intermodal marketing companies.
The move away from consolidated services continued with ocean carriers abandoning chassis ownership and, in some cases, the management of marine terminals. It was left to trucking companies, third-party logistics providers and other entities to put all of the pieces together on behalf of shippers.
Time for the pendulum to swing back. Now, the lines appear once more to be positioning themselves to handle multiple aspects of an international move. Denmark’s A.P. Moller-Maersk is leading the charge with its recent announcement of expanding services to cover all parts of the supply chain.
Maersk wants to build itself into “a global integrated container business,” chief executive officer Søren Skou told investors at a capital markets day in Copenhagen.
The new strategy differs from that of the past. This time around, Maersk is taking direct aim at UPS and FedEx, the two dominant package deliverers in North America and elsewhere. The company called the move a response to changing customer needs in the age of e-commerce and other new technologies.
Evidently it’s no longer enough to be among the world’s leading providers of port-to-port service. Given the obsession of Maersk and its rivals with the introduction of progressively larger containerships, now topping 20,000 twenty-foot equivalent units, that’s a sharp departure from their approach of the last couple of decades.
Even more shocking is Maersk’s timeline for the transformation. Skou expressed hope that UPS and FedEx would be considered “peers” of the line within three to five years.
The move could be seen as an acknowledgment that pure ocean services aren’t profitable, given chronically low freight rates and overcapacity caused by the introduction of the new mega-vessels. Even when rates are relatively high and stable, carriers still aren’t consistently earning their substantial cost of capital.
The proof is in their “miserable” performance of recent years, says Foster Finley, global head of transportation with AlixPartners. Following Maersk’s 1999 acquisition of the U.S. carrier Sea-Land Service, the carrier accounted for more than a third of the Danish stock exchange, Finley notes. Its sheer size made it essential that the company figure out a way to boost profits.
Maersk has had some unique problems, including a diversified portfolio that muddied its mission with assets in shipbuilding, grocery stores and energy. Determined to renew its focus on liner transportation and logistics, it has gradually shed itself of some extraneous units – the supermarket business in 2014, and tankers and the oil and gas division in 2017.
Yet the woes of Maersk’s core container business are endemic to the industry as a whole. “That entire industry segment has been under a really dark cloud,” says Finley. Hence the company’s pivot to a more integrated approach to transportation.
On the technology side, Maersk is diving into the trendy waters of the blockchain. In a recently announced joint venture with IBM, the company said it would deploy blockchain’s distributed ledger model to solidify collaboration among trading partners.
Details on these ambitious new plans are, for the moment, scarce. It’s unclear how the blockchain project will fit into a profitable operating model. (The same could be said for the flood of blockchain initiatives announced by multiple companies over the last few months.)
An even deeper question concerns how Maersk will transform itself into a rival of UPS, FedEx and other big integrated carriers within a few short years. It’s up against established entities that have themselves been bulking up through acquisitions and territorial expansions. And don’t forget Amazon.com, which is posing a direct challenge to the small-package giants by moving to acquire its own logistics assets.
Maersk will have to pick up interests in warehouses, material-handling systems, labor and cutting-edge technology. “You’re talking about a pretty massive investment in almost every direction you turn,” says Finley.
Simultaneously, the company that has focused up to now on moving metal boxes would have to become an almost instant expert in managing small packages. That world is becoming more complex by the day, as e-commerce shoppers demand rapid fulfillment and a wide range of delivery options.
What’s more, retailers, wholesalers and distributors already have well-established supply chains and service partners on whom they depend for the movement of imported goods. Are they willing to shift responsibility for that product flow to a newcomer like Maersk? Can the carrier set up tight supply lines with overseas manufacturers?
“There are a lot of inconsistencies on the face of it,” says Finley, “that don’t exactly make perfect sense.”
Considering Maersk’s relative success as a venerable transportation provider over more than 140 years, it would be premature to dismiss its newfound ambitions out of hand. But if the mega-vessel mania is any indication, we can expect other big container lines to stampede in the same direction of providing integrated logistics services. The short-term result could be an extremely crowded and chaotic market. And, in the end, lots of losers.
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