The CEO of A. P. Moller-Maersk, operator of the globe’s largest ocean container shipping line as well as various oil exploration and transport services interests, has declared to the company’s investors that the firm will likely experience flat profitability growth through 2016.
Maersk has elected a business strategy to reduce its dependency on the current turbulent ocean container shipping segment by currently investing in oil production, ports and bulk shipping activities. According to a Reuters published report, CEO Nils Smedegaard Anderson once again declared, as was the case in October 2013, that over-capacity remains prevalent across ocean container shipping and that it will be not until at least 2016 until the industry compensates.
Maersk is currently investing in its oil related businesses but profits in the line’s oil and drilling segment are expected to fall in 2014, adding additional challenges to its overall business strategy. However, Anderson declared that Maersk Line, its ocean container unit, still aims to be more profitable than other industry competitors, targeting its profit margins at a rate that is five percent higher than other ocean container shipping operators. In essence, Maersk is declaring that it will make money even if the rest of the industry has zero or negative profits. According to Reuters, during 2013, average freight rates for the Maersk Line segment decreased by 7.2 percent while volumes increased by 4.1 percent. Overall fuel consumption was reduced by 12.1 percent which contributed to lower operating costs and profitability.
The proposed P3 Network that pools the capacity and shipping assets of the top three ocean container operators is still awaiting regulatory clearance from various maritime review agencies. One of the prime motivators for formation of this alliance was to assist the top three lines container lines in terms of volume with alleviating over-capacity and allow for reduced operating costs by saving on fuel and other operating costs. While that may have been the declared collective goal, the Maersk Line’s stated profitability goal stated for its investors seems to fly in the face of the goals of this network alliance.
One of our Supply Chain Matters predictions for the current year called for increased momentum in re-structuring of global surface transportation networks. That prediction is holding true when the ocean container industry leader declare it will exceed the profitability of all its competitors, in spite of industry over-capacity and attempts to consolidate fleet scheduling and shipping operations.
Something has got to give, as shippers continue to be caught in the middle of conflicting business goals.
What’s your view?