Review | Maersk Line looks to efficiency in navigating shipping downturn
Danish carrier vows to stay on top as it adopts innovation, cost cutting to cope with slump
Corporate leaders at the helm of some of the world's biggest shipping lines are facing an unprecedented challenge in recent times: How to make money in an industry trapped in constant excess supply, sluggish demand growth and cost-sensitive customers?
Seven years on from the global financial crisis that turned the container shipping market upside down, Maersk Line - the world's largest container carrier - has thrived through a slump after years of endeavours towards cost saving and innovation. While many of its competitors are fighting to stay afloat through asset disposals or service withdrawals, the Copenhagen-based giant, part of the AP Moeller-Maersk Group, is reaping the benefits of efficiency and cost reductions over the past few years.
In the second quarter of this year, Maersk Line reported underlying profit of US$543 million. The profit result, although 8 per cent down from a year earlier, represents an improvement in light of a sharper downturn in revenue, which contracted 9 per cent during the period. At the same time, many carriers continue to struggle to make ends meet, as the container shipping market braces for the bleakest supply-demand picture since the global financial meltdown.
"We always know it's a tough market. We want to remain as the world's largest carrier," Robbert Van Trooijen, north Asia chief executive at Maersk Line, told the .
Having regained some lost market share in the second quarter, Maersk changed its strategy from "growing with the market" to "at least growing with the market". More than a superlative, the new motto exudes confidence and comfort with a leadership position.
"This change means we will protect our leadership position. It's important to remember that growth comes from customers' demand, from having a very competitive product. That is the change in strategy," said Van Trooijen, who took office just two months ago.
Maersk's success lies within its "superior cost structure", said Tan Hua Joo, an analyst at consultancy Alphaliner. "Market share gains are secondary, and in any case are easily earned if carriers are prepared to slash freight rates.
"Maersk's superior performance is largely due to their superior cost structure and that can be attributed to several key factors, including an expansive global network, control of key hub ports, economies of scale and size with the deployment of some of the most efficient ships in each trade lane they operate in."
But cost saving, said Van Trooijen, was hardly a simple exercise. "It is scrutinising the way you work. From the way your ship sails to how you contract terminal services, there is a whole array of decisions to be made, and eventually make cost saving a lifestyle. It has taken us years of work to make that culture systemic in the organisation."
An oil rout since the middle of last year has been a boon for shipping lines. But even if carriers are facing the same alleviated cost pressure, not every one is reaping benefits to the same extent, and certainly, it does not end the need for constant cost improvement in an industry that operates on razor-thin margins.
"Everybody is taking advantage of the lower fuel, but the one who takes the most advantage is our customers, because shipping lines have passed on the saving to customers," said Van Trooijen.
"If you don't change the way you work, you won't be able to take full advantage of cheaper bunker fuel. There's no one single recipe on how to save costs. It's systemic behavioural change to address every single cost element in your organisation."
Maersk has been the champion of driving innovation, notably its decision in 2011 to build the so called triple-E class of ships that set a record for size of container vessels.
"Our decision to order ships is a long-term one, based on 10 to 15 years of growth projection," Van Trooijen said.
