World’s largest container line in trouble

Maersk boss says carrier risks losing top spot
Janet Porter, 27 December 2007 Lloyds List

TROUBLED Maersk Line will be toppled from its number one spot without a dramatic improvement in customer service, much lower overheads and a far more careful selection of cargo.

That is the blunt message from chief executive Eivind Kolding as he prepares the next stage of Maersk’s recovery program, to be unveiled next month.

Mr Kolding’s analysis of Maersk Line’s position, set out in three letters to staff circulated early December, reveals an organization in far worse state than any inside and outside the company had realised.

He frankly admits to being “taken aback” by many of the findings, and is demanding a fundamental change in thinking.

Maersk Line “is at a crossroads”, Mr Kolding warned, and will not regain its licence to grow unless the company can be turned round “now”.

The Danish carrier has been ranked the world’s largest container line for many years, helped by two major acquisitions with the takeover of Sea-Land Services in 1999, and then more recently P&O Nedlloyd in 2005. Maersk has also been at the forefront of ship design and development, leading the way with the introduction of super-sized vessels.

But in recent times, two European rivals have been closing the gap on Maersk and could threaten its pre-eminent position.

Over the past five years, Maersk fleet capacity has expanded from just under 790,000 teu to 1.6m teu, according toci-online. At the same time, second-ranked Mediterranean Shipping Co has grown its fleet from 511,000 teu to 1.2m teu and has a larger newbuilding programme than Maersk.

But French line CMA CGM has leapt from number six to third place over the same period, as capacity has shot up from 262,000 teu to more than 700,000 teu, with a further 500,000 teu on order. Mr Kolding has left staff in no doubt about Maersk’s precarious position and the risk of being pushed from the top of the league without radical internal reform.

The competition “will take over the leadership position”, he told the workforce. The list of areas in need of major surgery appears to suggest that Maersk Line’s crisis is far more deep-seated than top management had suggested.

As AP Moller-Maersk’s container shipping division sank deep into the red last year, recently retired group chief executive Jess Søderberg has blamed the situation largely on the introduction of a new but not fully ready IT system at the same time as the integration of P&O Nedlloyd.

Many of the complaints Maersk has faced from customers probably can be traced back to software issues. For example, 20% of all invoices are still incorrect, according to Mr Kolding. This was one of the black holes responsible for the line’s recent run of dreadful financial results.

But under-performance does not end there, with 50% of all shipments more than a day late.

And in a comparison that has attracted much attention in the wider world, Mr Kolding also reckons that, if Maersk had the same cost base as Singapore’s APL, it would have accrued a profit of $5.5bn over the past three years rather than just $2bn.

Possibly driven by the need to fill its huge ships, Maersk has not been securing the best-paying cargo, scolded Mr Kolding, the former AP Moller-Maersk chief financial officer who took over as sole chief executive of Maersk Line earlier in the year as other senior executives were ousted.

Mr Kolding will announce more details of the recovery plan, called StreamLINE, in a few days time, but some changes are already in train.

As Lloyd’s List reported at the beginning of December, Maersk Line will be separated from Maersk Logistics and other container business activities.

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