Thanks to the courtesy of Loadstar, WCL has been authorized to publish
the full article even though it is paid content.
BY ALESSANDRO PASETTI
“It appears that the vessel-operating common carriers (VOCCs) got the upper hand. But in shipping, you need to look at cycles.”
It’s that time of the year when pre-Christmas gifts are always gratefully received, so I am delighted to have had the opportunity of sharing views with Hans J Willam, managing owner of Hamburg-based Worldwide Consultants in Logistics (WCL), one year after we talked about AP Møller-Mærsk’s (APMM) strategy and what it could mean for the competitive environment in logistics.
How have those “Super-NVOCC* triumvirate” considerations changed, if at all, these days? A bit, albeit not substantially.
(*NVOCC: non-vessel operating common carrier, the asset-light folks)
Are the global logistics services providers (GLSPs) feeling greater urgency to do something, anything, to react to APMM?
Yes and no, but another 2021-like year is unlikely in container shipping and freight forwarding, base case (yields and other key performance metrics have peaked in Q4 21 or are just about to peak).
And is APMM smart enough in its corporate actions for the “neutrality line” not to be blurred?
It’s clear to many that we are beyond this point and they are really getting at it, but whether the biggest APMM threat will be in air freight or ocean freight is yet unknown – with the former product maybe more prominent in terms of “neutrality risk” for the GLSPs, also considering the recent launch of CMA CGM Air Cargo.
Mærsk has a defined strategy. It wants to be a Kuehne+Nagel “with its own assets”, Willam noted, confirming the consensus view forming in our marketplace too – with all the risks that it carries for Kuehne + Nagel, in particular, and all other APMM supporters in the supply chain.
The bullet question, to quote Willam, is: “Will the customers, the BCOs [beneficial cargo owners], accept the one-stop shopping concept?”.
Today, and most probably until the end of next year, “the customers don’t have a choice because as long as Mærsk offers space and equipment, customers will not look elsewhere”.
(Although near-shoring, certain related trends and heightened geopolitical risk were already flagged as existential threats to the supply chain in mid-2020 – APMM is hedging those risks too by expanding in logistics.)
Enter cyclicality, with ocean freight rates already sending shivers down the spines of the logistics bulls, if you read the latest the other day: “Container spot rates in free-fall“.
“Things could change towards the end of 2022,” Willam warned, “because Mærsk does not offer ‘neutral supply chain services’ and, to my knowledge, some of the large customers – formerly serviced by Damco – don’t feel comfortable with Mærsk booking cargo with different carriers, the VOCCs, based on service contracts signed by the customer.”
At that point, as tension builds in overlapping/competing 3PL spaces for a carrier and the rest of GLSPs it serves, one may well expect the asset-light firms to react – will they acquire assets, if/when available? Will they order vessels, turning into capex-heavier entities?
And/or when the earnings cycle turns south, will they form alliances, like the carriers did when the profits dwindled or losses mounted?
“The idea of a Super-NVOCC triumvirate,” which we touched upon in December 2020, “will not work. I would expect various VOCCs to reject bookings from the owners of such an entity. Time will tell, but I expect the GLSPs to reduce their bookings with Mærsk once the market softens.”
To antitrust issues: we agreed there could be ways to avoid deep scrutiny for a Super-NVOCC triumvirate, given their combined market share on paper, but we wouldn’t expand on that, rather looking more closely at the APMM relationships with the NVOCCs (I guess you all read: “Maersk looks set to cut out freight forwarders to attract larger BCOs“).
Willam explained that apparently…
“Mærsk has decided to reduce the number of NVOCCs it wants to work with.”
A bit of recap for the uninitiated before moving on.
“We need to clarify, though, that freight forwarding services should not be mixed up with ocean transport (acting as a carrier). BCOs negotiate and sign service contracts with various VOCCs but appoint freight forwarders to handle the bookings, including documentation and other supply chain services.
“If we now talk about Mærsk working with NVOCCs, the key question is: will Mærsk offer FAK contracts to NVOCCs? Or will Mærsk just tell the NVOCCs to book cargo based on Mærsk Spot? If so, this will result in ‘cutting out the middleman’, ie, the NVOCCs.
“Why? Because the BCO will get the same rate as the NVOCC from Mærsk. Thus we need to find out if Mærsk will offer special contracts to NVOCCs or not.”
As I recently countered elsewhere, this process is all the more relevant now, as the carrier-to-logistics shift occurs (still, profits from logistics and associated services are peanuts compared with APMM’s core shipping earnings), but has been under way since APMM launched its Stay Ahead 1.0 reorganisation in late 2018, which we exclusively covered at the time.
But what strikes me, and many others closely monitoring APMM daily**, is how what it is doing now isn’t incredibly different from what it did at different stages of its past investment cycles, when I wasn’t even born.
(**Incidentally, this week’s deal engineered by its 100% spin-off Mærsk Drilling (MD), which merged with Noble Corp, to say the least smelled of damage limitation at about half the price MD was listed at in April 2019.)
Or it could be labelled as “nothing new“, as Kuehne + Nagel veteran Bob Mihok said when Premium enquired about the topic in the summer of 2019.
“I have joined this industry at the beginning of 1974,” Willam reminded me. “Looking at ‘Mærsk Line’, it has always been clear that Mærsk has tried more than once ‘to cut out the middleman’.
“But whenever there was overcapacity, Mærsk offered attractive rates to NVOCCs. Particularly after Mærsk bought a competitor (eg, Sealand or P&O Nedlloyd), it ‘inherited’ a sizeable NVOCC volume and was thus forced to continue to work with the NVOCC industry. To me, it is not surprising that Mærsk is apparently trying to kick out the NVOCCs. But what will happen, say, in a year’s time remains to be seen.”
Then, the narrative shifted towards Damco, the aborted freight forwarder*** that had to go as Stay Ahead accelerated to stage two and beyond – sure, we also exclusively covered those developments ahead of the formal announcement; read all about “a new APMM star is born” here and here.
(***Only three years ago in the top 15 GLSPs by revenues; then in 2016, ranking 20th by air volumes and 10th by ocean volumes)
“Talking about Damco, we need to look at history first. Originally, Mærsk created ‘Mercantile’ to compete with Buyers Consolidators (owned by APMM’s Sealand) and ACS (owned by APL).
“In between, the name was changed to Mærsk Logistics. After the acquisition of DSL and the integration of Buyers Consolidators and Damco, the name for all forwarding and supply chain services was changed to Damco. If we look at the past couple of years (before being integrated into Mærsk), Damco was comparable with Ceva Logistics.
Damco was, “in my opinion, a neutral service provider offering supply chain services (global market leader!), air freight and NVOCC services. We don’t know the detailed figures, but I understand that the supply chain management business was very successful and profitable.
“I think the former Damco CEO (Rolf Habben Jansen, now CEO of ocean carrier Hapag-Lloyd) was on a good path to restructure Damco’s forwarding business to achieve profitability. After Rolf left, I did not see too many professional forwarders on the executive board.”
To which, I’d humbly add that under previous leadership – the pre-Skou era, under Nils Andersen – Hanne B Sørensen, a protégé of Andersen, did an outstanding job turning it around, but only for a short timeframe (she left with Andersen). And it must be also be said that there are views in the market, suggesting Rolf Habben Jansen could have done much more than he did to turn Damco around.
Regardless of all that, diving into the cultural element of the supply chain differences that divide asset-light from asset-heavy, Willam believes “that Damco could have been run on a profitable basis, but having too many shipping line people (without the entrepreneurial freight forwarding experience), hence guys from Mærsk Tankers or APM Terminals, you cannot run a successful GLSP.”
And we both agree that now, APMM having hired several experienced and talented people from NVOCCs, will continue to look at acquiring GLSPs with decent air freight volumes; moreover, the view is that if APMM is serious about its strategy (it is!), “they must acquire GLSPs. Having its existing business plus Senator is just not enough to become a global air freight player”, for example.
(Side insight corner: this comes as we understand that several GLSP managers are carefully watching what APMM does, because the cash pile and plenty of financial flexibility it boasts could help it challenge the major asset-light companies. Mind you, market talk is also that the CEO of Senator is on gardening leave already, so APMM wants to go all the way its own way, possibly thinking it knows better after a string of hires from forwarders and asset-light logistics rivals in the past couple of years.)
And the answer to that, without jeopardising neutrality and keeping its European counter-parties happy, would be to acquire CH Robinson (as we argued here) – which is now on everybody’s lips, as it’s desperate to attract new talent organically****, while it was also earlier rumoured to be looking at taking over BDP International (more here), which has been on the market for a few weeks now (no update yet, am afraid).
(****It is searching for several outstanding leaders in account management)
Crystal ball time
Now, “if we now look at the future, it is difficult to come up with a clear view. But Mærsk has become a ‘new entity’. By acquiring forwarders (Senator International and most probably more to come), Mærsk has assets (vessels and aircraft), but also offers 3PL and 4PL services. It’s the only company to do so,” competing head to head with “all GLSPs. But these have supported Mærsk for many years. It’s a stand-alone type of business model”.
“Will Mærsk win the battle by competing with at least 10 major shipping lines as well as hundreds of freight forwarders around the globe?
“If the customers (BCOs) believe in the one-stop shopping concept of Mærsk, everything will be fine. But if BCOs look for neutral service providers (GLSPs), you could call the competition ‘Mærsk against the rest of the world’.
“Therefore the role of, and decision making by, the BCOs is decisive when looking further out, to 2025.
“But, anyway, I am convinced that the GLSPs will look at Mærsk as a key competitor and thus reduce their bookings there. Some GLSPs will thus kick out Mærsk and not the other way around.”
When asked whether shippers themselves should get deeper into logistics, for instance, retaining separate logistics arms, acquiring a mid-sized forwarding/3PL company – or freight forwarders acquiring/leasing vessels/aircraft – Willam countered: “Difficult to answer which BCOs could be attracted to buy a 3PL or even a 4PL.
“I don’t believe major retailers are attracted to the 3PL industry. In ocean freight, there are already charter operations and so on; in air freight, I would think that it makes no sense for BCOs to sign long-term charter contracts.
“Some GLSPs are already active, in order to charter vessels, but I don’t expect this to continue on a long-term basis. Aircraft? Yes, and it’s already done by many GLSPs and will continue at least midterm.”
Competitive landscape – other key takeaways
Courtesy of Willam, here I have selected other relevant bits that emerged as part of our lengthy conversation:
“If we now look at the other VOCCs, nobody is (yet) trying to copy the new Mærsk. Yes, CMA CGM owns Ceva Logistics and they have created a cargo airline. But CMA CGM leaning towards a Mærsk type structure?”
“None of the other major VOCCs run large logistics operations. MSC owns a freight forwarder, but I don’t expect MSC substantially to grow freight forwarding activities.”
“If we now look at the major GLSPs, I don’t expect major activities in view of long-term chartering for ocean/air freight, let alone buying vessels or aircraft. I think the GLSPs will strengthen their partnerships with NVOCC-friendly VOCCs.”
“I think it is fair to say that this will change, at the latest during 2023. The one company that will see NVOCC customers running away is Mærsk.”
“The main reason is that Mærsk is now becoming a major competitor, vis à vis GLSPs and NVOCCs. Just look at the number of staff it has recently ‘stolen’ from the top 10 GLSPs.”
Christmas came early for me this year. Many thanks, Hans.
(Ale Pasetti is the head of Loadstar Premium and can be reached at +44 740 22 555 12; or via email at email@example.com)