Consolidation and not newbuilding orders will be Maersk Line’s preferred growth path as Denmark’s AP Moller-Maersk refocuses on becoming a leading container and logistics company, its chief executive says.
Soren Skou - who engineered plans to split the conglomerate in two this summer - says the expansion will be required as the group looks to replace revenue lost when its four energy businesses are spun-off during the next couple of years.
Following this year’s strategic review, Maersk Line now sits as part of the group’s Transport and Logistics division, alongside APM Terminals, Maersk Container Industry and Svitzer.
The reshaped Maersk has made expansion in the $1 trillion container, ports and logistics industry its strategic priority, with the drive already kicking into gear with a takeover of Hamburg Sud.
Skou explained that the deal fitted Maersk’s strategy at a time when container shipping had sufficient capacity to satisfy industry demand for the foreseeable future.
According to data presented at the company's capital markets day in Copenhagen, there are presently 19 million teu of containerships trading, with 2 million teu idle and 3 million teu on order.
By 2022 there will be 23 million teu in service, ahead of the 22 million teu Maersk Line calculates will be required, the executive explained.
The industry does not need to order new ships and we do not need to construct any new ships, Skou said.
“For those who want to invest in the industry merging and acquiring existing capacity is the most rational way to do that,” he added.
In an interview with Bloomberg Television broadcast from the event, Skou said: “The old model of growth through acquiring new capacity, building new ships, is not working any longer. There is too much capacity and the industry needs to consolidate.”
Revenue replacement
Skou’s presentation was headlined Maersk – the new direction.
The journey will see the group’s energy businesses, Maersk Oil, Maersk Drilling, Maersk Tankers and Maersk Supply, separated via joint ventures, mergers and acquisitions or independent listings during the next two years.
This will reduce the group’s revenue by 25%, Skou said. However, he explained the Hamburg Sud transaction has already “replaced 15 of the 25 revenue percentage points that will depart the group in the coming years".
Consolidation sequence
The Hamburg Sud takeover continues a sequence that has seen eight of the world’s top lines disappear in the past two years via mergers and acquisitions and the failure of Hanjin Shipping.
This has led to a strengthening of the biggest names, with two thirds of the global market set to be in the hands of the leading five companies by 2018.
“Despite that, it is not yet a truly consolidated market," Skou said, noting more consolidation is going to occur in the coming years, with Maersk Line set to be part of that process.
In the long run, Skou told Bloomberg the liner industry could look like the courier express sector, where FedEx, DHL and UPS dominate.