Maersk may launch price war with MSC
Consulting firm Drewry is reported to have predicted that Maersk will face a new reality this year after achieving record profits in 2022, which means the company and defunct 2M alliance partner MSC may launch a price war. war.
With too many half-empty ships, fiercer competition for customers and an ambitious logistics strategy, Maersk must weather its first real test. 2023 could be a very challenging year for Maersk and newly appointed CEO Vincent Clerc.
On the positive side, according to the 2022 performance report released on February 8, the company's total net profit reached 29.3 billion US dollars, setting a record in the history of Danish business. (Check out: Maersk Announces Strong 2022 Results With $81.5 Billion in Revenue! But 2023... )
But the container market, which has been lucrative for shipping lines over the past two years, is shrinking rapidly as freight rates and volumes fall. This is bound to hurt Maersk's revenue this year and next, several shipping analysts said.
Xeneta's latest information on the contract negotiations between shipping companies and customers shows that spot freight rates have been falling for a long time, and long-term contract prices are now also falling.
And changes in the market are just one factor. In a new analysis, Drewry points out that 2023 will also be the first real test of Maersk's ambitious logistics strategy.
The main reason for this is the termination of the eight-year 2M alliance with rival MSC, the world's leading container shipping company. The partnership has been active since 2015, but it was announced a few weeks ago that it would be disbanded in early 2025. (Check previous issues: Big news! The world's largest shipping alliance 2M announced its dissolution)
"The dissolution of the 2M alliance was ultimately the result of a strategic conflict between the companies, which instead begs the question: which model is the right one?" Drewry said.
Since 2019, Maersk has completed major acquisitions of logistics companies to expand shipping and port terminal activities, including land transportation as well as warehousing and customer service.
Maersk said that its integration strategy will transform the company into a comprehensive, customer-oriented, door-to-door logistics integration service provider. The logistics business will also provide support to the group's overall earnings at a time when the sensitive container market is under pressure.
Over the past four years, Maersk has spent about $7 billion acquiring logistics companies including LF Logistics, Pilot Freight Services and Senator International.
The logistics companies acquired by Maersk in recent years are as follows:
Vandegrift, a well-known US customs broker: February 2019 - price unknown
Performance Team, a well-known warehousing and distribution logistics giant in North America: February 2020 - 545 million US dollars
KGH Customs Services, a European trade and customs management services company: July 2020 - $279 million
European and American e-commerce logistics giant Visible SCM & B2C Europe: August 2021 - price unknown
South African freight and financial services company Grindrod (51%): November 2021 - $13 million
SENATOR INTERNATIONAL, a German air and ocean logistics service provider: November 2021 - $644 million
LF Logistics: December 2021 - $3.6 billion
Pilot Freight Services, a leading US cross-border logistics solutions provider: February 2022 - $1.8 billion
Danish project logistics company Martin Bencher Group: August 2022 - $61 million
MSC, which is about to part ways, is following a very different strategic trajectory. The shipping company is investing billions of dollars to expand capacity by buying and leasing second-hand vessels and placing a record number of newbuilding orders at shipyards.
This aggressive growth plan leads to MSC surpassing Maersk to become the world's largest container liner company in January 2022. According to Alphaliner's information, MSC's current newbuilding orders have increased to 133 ships with a capacity of 1.82 million TEU. In contrast, Maersk has only ordered 30 ships with a capacity of 373,000 TEU.
Drewry pointed out that MSC's scale is gradually increasing, allowing the company to steadily manage and better utilize its growing fleet and service network. The problem is that MSC has decided to go full speed ahead at a time when the container market has peaked and is declining at an ever-increasing pace.
The launch of new container ships will force capacity to increase beyond demand. Investment bank Barclays estimates that the global container fleet will grow by 11% this year and by 2025 will be 30% more than before the pandemic.
"MSC seems to think it can make better use of these ships without being constrained by partners with different priorities," the Drewry analysis noted. But there is a risk that MSC will revert to its Pre-existing market share and low-cost operating model, which may destabilize the market.
If Maersk takes action and engages in a price war with MSC, it will be bad for Maersk. "Maersk has invested a lot of money and energy into its integration strategy, and it's hard to see it giving up now."
Without the backing of shipping alliances like 2M, Maersk's future could be in trouble, Drewry said. Maersk is too small to operate independently, but too large to join one of two other shipping alliances. Even if Maersk tries to do this, competition regulators could step in.
Lars Jensen, analyst and founder of shipping consultancy Vespucci Maritime, predicts that MSC will increasingly launch its own services as it takes delivery of a flood of new ships.
"Furthermore, the dissolution could lead to a more direct commercial confrontation between MSC and Maersk, with both parties struggling to retain their own customers and potentially 'poaching' customers from partners in the process of gradually dissolving."
Drewry estimates that Maersk's logistics strategy may be fruitful, but it also carries obvious risks, with several pitfalls. One criterion for success, it noted, was the proper integration of the many acquired logistics companies into the group business, which "is a daunting task for any large company".
Management is needed to ensure that the collective organization delivers services to customers in a uniform manner, while also focusing on price and all parts of the supply chain. Success will also require skeptical customers to embrace the concept of an integrated door-to-door logistics solution.
"Previous attempts by shipping companies to expand their business have often been disappointing, but new technology has given people hope that this time things may be different," Drewry commented.
Referring to the termination notice of the 2M alliance, Maersk said that times have changed and so have strategies.
The two world's leading container shipping companies created the 2M alliance in 2015, with the main purpose of ensuring that a series of new ultra-large container ships with a capacity of 20,000 TEU can be fully loaded to improve the loading rate through slot sharing.
Today, Maersk has different needs, said Johan Sigsgaard, chief product officer and executive vice president, Maersk Marine. "The 2M alliance was a product of the space sharing agreement in the shipping situation in 2015, but it is no longer suitable because what we need is a more independent Maersk brand." He said, "Today, our focus is on integrating ocean and land service networks road."
