Jason Thomas

Management 1020
December 11, 2014
Final Project

Mrsk Line
Maersk Line is one of the largest international container freight shipping companies in
the world. It is headquartered in Copenhagen, Denmark. The company was launched in 1904 by
Danish shipping merchant A.P. Mller. In 1928 operations became global as the m.s. LEISE
MRSK left Baltimore loaded with Ford car parts headed for an assembly plant in Asia.That
same year Mller also formed Maersk Tankers to ship petroleum for Shell and Standard Oil. 1

Maersk Line is part of A.P. Mller-Mrsk A/S (APMM), a large international

conglomerate. The company provides container shipping in all parts of the world, with 374
offices in 116 countries. The almost 35,000 employees include over 7,000 at sea. They operate
590 container vessels with a capacity of 2.8 million TEU (Twenty-foot equivalent unit). They
have 59,000 customers worldwide and approximately 11 million full containers are shipped
annually. 2

Maersk Line is currently headed by CEO Sren Skou, who has held the post since 2012.
For the ten years prior to that he was CEO of Maersk Tankers. Skou has been with A.P. MllerMrsk since 1983.

Other Maersk Line executives:

Sren ToftChief Operating Officer
Jakob StausholmChief Strategy, Finance & Transformation Officer

Jephson, Chris, Creating Global Opportunities: Maersk Line in Containerisation 1973-2013, Cambridge
University Press, 2014, p. 13.
2

Maersk website: http://www.maerskline.com/en-us/about/facts-figures

Stephen SchuelerChief Commercial Officer

Vincent ClercChief Trade & Marketing Officer
Michael ChiversHead of Human Resources

Industry
Though APMM offers service in virtually every segment of the maritime shipping
industry, Maersk Line focuses on container shipping. It is the largest container shipping carrier in
the world, with 15.5% of global market share. There is one other line of comparative size,
Mediterranean Shipping Company (MSC), which holds 13.6% of the market. Due to high capital
costs and a history of mergers the industry is highly concentrated. Together the ten largest
shippers control about 63% of global trade.34

Maersk Line offers shipping services to almost every country in the world. It has offices
in 116 countries and makes 33,000 port calls per yearabout one every 15 minutes. Prior to the
maiden voyage of the 19,100 TEU CSCL Globe on Dec 8, 20145, Maersk operated the six largest
container ships in the world. All were Triple-E (for efficiency, economy of scale, and
environmentally improved) models that were launched in 2013-2014. The Triple E vessel type
can carry 18,000 containers and is the most energy efficient and environmentally improved
vessel. CO2 emissions per container-kilometer are about half the industry average on the Asia-

3 Industry information: http://worldoceanreview.com/en/wor-1/transport/global-shipping/ and

http://www.joc.com/maritime-news/international-freight-shipping/ocean-shipping-evolution-key-priorities-oceantransport-logistics_20140616.html
4

Alphaliner - Top 100: http://www.alphaliner.com/top100/index.php

Worlds Largest container Ship leaves Shanghai for Europe, The Daily Mail, December 8, 2014,
http://www.dailymail.co.uk/wires/afp/article-2865249/Worlds-largest-container-ship-leaves-Shanghai-Europe.html

Europe trade. Maersk ordered a total of twenty Triple-Es from Korean shipbuilder Daewoo. It
has taken delivery of twelve; the eight remaining ships are under construction6.

Maersk is highly unionized. In the United States, Maersk Line operates approximately 50
U.S. flag vessels and they staff their vessels by working directly with different unions. Deck and
engineering officers for their government contract vessels are crewed through the American
Maritime Officers Union (AMO). Deck and engineering officers on their Roll-on/Roll-off
vessels and many of their container ships are crewed through International Organization of
Masters, Mates and Pilots Union (MMP) and the Marine Engineers Beneficial Association
Union (MEBA). All unlicensed positions are crewed through Seafarers International Union
(SIU).7

Financial Performance
For the past several years the Maersk Lines goal has been self-funded growth that keeps
pace with the industry while maintaining EBIT margin of 5% above industry average. They have
met this goal continuously since Q4 2012. For FY 2013 the company reported revenues of $26.2
billion and a post-tax net profit of $1.51 billion. Despite a 7.2% decrease in the average freight
rate and a 3.2% decrease in total revenue, the firm was able to increase its return on invested
capital (ROIC) from 2.3% in 2012 to 7.4% in 2013, thanks to a 10.6% decrease in per-unit costs.
This was mainly achieved by logistic improvements that lead to a 12.1% decrease in bunker

First Triple-E Vessel Mrsk Mc-Kinney Mller Delivered, Sea News Turkey, July 3, 2013,
http://www.seanews.com.tr/article/SHIPBUILDING/106011/
7

Maersk website: http://www.maersklinelimited.com/working-with-mll/careers/careers-afloat/

consumption despite a 4.1% increase in overall freight volume. The invested capital ratio was
39.6% on $20.046 billion total invested capital8.

Major Issues in the Ocean Container Freight Industry

The ocean shipping industry has two major challenges. First, customers consistently seek
lower prices, especially in recent years as rapid expansion in capacity has caused it to outstrip the
growth in demand. Second, they want reliability. In Q4 2013 transcontinental container ships
arrived on schedule only 77.6% of the time, and this number could continue to decline as pricing
pressure forces more cost-cutting measures9.
The pressure to lower prices has caused a huge increase in orders for very large container
ships (VLCS). These vessels feature increased capacity and fuel efficiency. Their large size,
coupled with the fact that they sail more slowly, means that they must call at only the largest
ports, which is causing a shift in the logistics of transoceanic shipping to more of a hub and
spoke model.
High capital investments coupled with low returns on that capital has created tremendous
pressure for carriers to come together to improve operating efficiency. Mergers and strategic
alliances have further condensed an already highly concentrated industry. Strategic alliances
include Grand Alliance, CKYH Alliance, and New World Alliance. Recent mergers include
Hapag-Lloyd and Hamburg-Sd. Maersk is launching its own 2M Alliance with its largest
competitor MSC.
8

A.P. Mller-Mrsk A/S Annual Report 2013: http://files.shareholder.com/downloads/ABEA3GG91Y/3717803602x0x731491/fb0012ef-15f0-4fda-80e0-d9a1b00b698e/Annual_Report_2013.pdf

9

Leach, Peter T., Shippers Want Good Price-and Service-From Carriers, Journal of Commerce, April 17 ,2014,
http://www.joc.com/maritime-news/container-lines/shippers-want-good-price-%E2%80%94-and-service%E2%80%94-carriers_20140417.html

In the next few years as many as 100 new VLCSs will come online, accelerating the
increase in capacity. The proliferation of these ships is forcing other portions of the industry to
adapt, as few ports are large enough to accommodate VLCSs. But that is changing as smaller
ports upgrade in a bid to win the traffic of VLCSs. Additionally, the Panama Canal upgrade that
is scheduled for completion in 2015 will allow VLCSs to service the Asia-American East Coast
routes. The three factors in combination will set up a positive feedback loop that is set to make
VLCSs the new standard in long-distance shipping.

Maersk Strategies for Future Growth

Maersk expects freight rates to continue to decrease, as shipping capacity is expected to
grow about twice as fast as demand. With the addition of the 20 VLCS-class Triple-E ships,
Maersk will increase its capacity by 13% and position itself as a leader in energy efficient slow
steaming.

Maersk has sought to improve supply chain efficiency through horizontal strategic
alliances. In 2013 it announced plans to join with its two largest competitors MSC and CMACGM in a vessel sharing agreement named P3 Network. This plan was rejected by officials in
China10, but the smaller 2M alliance between Maersk and MSC has been approved and is
scheduled to launch January 2015. The pooling of 185 vessels is expected to save Maersk $350
million per year.11 Also in January, the company will launch the dedicated subsidiary SeaLand in
10

Knowler, Greg, P3 Network scrapped as China rejects application, Journal of Commerce, June 17, 2014,
http://www.joc.com/maritime-news/container-lines/p3-network/p3-network-scrapped-china-rejectsapplication_20140617.html?destination=node/2754651
11

Howard, Michelle, Maersk and MSC Ship-Sharing Pact Gets U.S. Clearance, Maritime Reporter, October 9,
2014, http://www.marinelink.com/news/shipsharing-maersk-pact378715.aspx

order to improve service and market share in the intra-America segment. Going forward, it also
hopes to continue the success in 2013 of its SCM-based network cost initiative and total unit
cost initiative.

Innovation
In addition to the VLCS being added to its fleet, Maersk is also conducting its ECO
Retrofit Technology Programme to improve the performance if its existing vessels. Retrofit
initiative examples include:

Optimized hydrodynamics through changing bulbous bow optimized for the actual
operational performance
Elevation of navigation bridges to increase the carrying capacity
Installation of economizers on auxiliary engines for utilization of waste heat
Installation of frequency control of large pumps and ventilators

Retrofit initiatives are expected to have payback periods of one to two years.

Safety and Sustainability

Maersk reported a lost time injury frequency of 0.71 per million working hours in 2013.
In 2014 it announced the formation of the Container Ship Safety Forum with six other leading
companies in order to establish safety benchmarks and exchange information and best practices.

Sustainability efforts at Maersk are focused on lowering fuel consumption and CO2
emissions. For 2013 the company reported a decrease in CO2 per container-kilometer of 34%
since 2007, including a 12% decrease over 2012. Maersks goal is a 40% overall reduction by
2020. This was accomplished by the use of the new VLCS vessels, as well as improvements to
the existing fleet via the ECO Retrofit Programme.

Maersk sees sustainability as a conduit to create long-term value for their customers,
shareholders and society. For 2013, the company posted post-tax revenue of $1.51 billion
despite difficult market conditions. One of the reasons is their reduction of costs by improving
the energy efficiency of their fleet. In 2013, Maersk used 1.2 million tons of fuel less than the
year before. This is one of the strongest examples of how their sustainability efforts improved
profitability.