A.P. Moller Maersk made a promise two years ago: The company would announce a vast restructuring in September 2018, if all went according to plan.
Now, the time has come — and CEO Søren Skou is preparing for what may be one of the biggest moments of his career. A Danish newswire reported the announcement will happen Wednesday, Sept. 19, and already, a few major moves have leaked as rumors.
Step back: What is Maersk doing?
Today, Maersk is the largest ocean shipping company of the world. It controls 17.8% of transportation market share by sea, and boasts a capacity of 4 million TEUs. The next largest carrier, its partner MSC, has a 3.2-million-TEU capacity, according to Alphaliner data.
Despite its dominance, that market has proven fickle for Maersk, leading to heavy fluctuations in its profits each year.
The fluctuations, some would say, come with the business. 2016, the year Skou was hired to be CEO of the group, was also the first year the company posted an annual loss since World War II. Dramatic downturns in the oil and container markets sealed its fate and the next year was not much better.
The business had become unsustainable, and something had to change. In that sense, Skou joined Maersk with a mandate and did not wait to start the process. In the next two years, he would announce:
- A split in Maersk’s oil and transportation businesses.
- A new, digitally-savvy chairman would join the board in 2017.
- A sale of Maersk’s oil business for $7.5 billion.
- A future direct listing of the company’s drilling business.
- A new accounting structure, to bring all container-shipping businesses together.
- An intention to become a "global container logistics integrator" or one that sees UPS and FedEx as "peers."
In hindsight, the various pieces of news paint a common thread: Maersk, under Skou’s leadership, would divest its energy portfolio to double down on logistics in an attempt to streamline its business and bolster profits.
What happens Wednesday?
With a revamped business model, comes operating structure reform, and the changes may affect some of the 88,000 employees who work for A.P. Moller – Maersk.
Already, Skou has greatly reshaped the company’s leadership. Not a single one of the executives who led APM Terminals prior to Skou’s time remain in their positions, nor have all the positions been filled, Shipping Watch reports. The trade publication also notes Damco, the company's freight forwarding subsidiary, is likely to be folded into Maersk Line, according to its sources.
The "presentation" of a new structure on Wednesday, then, will likely include further realignments of leadership and people, if not of entire business units.
Maersk's logistics unit @Damco looks set to be merged into @MaerskLine as key part of reorganization, sources say. https://t.co/CnVE2XTDiW@Maersk @APMTerminals @MaerskSupply #logistics pic.twitter.com/FArCxuULrq— ShippingWatch (@ShippingWatch) September 12, 2018
Look out for …
It’s tough to know what exactly to expect on Wednesday. Maersk has changed so much of its business already, and we are only in year two of what the company insists is a three-to-five-year transformation.
Talk of Damco’s future may well signal changes to come for Maersk’s other independent business units: Svitzer, MCI and APM Terminals.
Lars Jensen, CEO of SeaIntelligence Consulting, told Supply Chain Dive via email he believed the reorganization would focus on three things:
- Closer strategic collaboration and integration, not just between Maersk Line and Damco, but also with APM Terminals.
- A strategy to "operationalize their digital ambitions."
- A possible reorganization of Maersk Drilling "to gear them up for the previously announced IPO."
"The reorganization is aimed at further strengthening the integration of the shipping, terminals and logistics businesses of Maersk," Tan Hua Joo, an executive consultant at Alphaliner, told Supply Chain Dive via email.
However, "such a strategy is not without risk," he said. "The results so far have been far from satisfactory as Maersk has continuously missed its earnings targets."
Still, Cathy Roberson, founder and head analyst of Logistics Trends & Insights, said she sees Maersk’s moves as a strategy for "competing in today’s environment." In an email, she compared it to UPS’ strategy of cutting costs, reorganizing departments and investing in new technology.
"Both (UPS and Maersk) have been hit negatively in their own wheel-house – small parcel and ocean freight, so they’re adjusting and making the necessary shifts to be leaner," Roberson said. "The reorg will probably help the company control costs and reduce or streamline overlaps in functions and capabilities."