Harvard Case Study

1. Case Study – Maersk Line and
the Future of Container Shipping
ME 7366 Global Manufacturing
Graduate School of Engineering
A. Lee Mulkey
October 29, 2012

2. Lee Mulkey Bio
 Founder and President ALM Company
 President and CEO Wenaas USA, Inc.
 President and CEO Purchased Parts Group, Inc.
 Senior Associate Indian River Consulting Group
 President and CEO Briggs – Weaver, Inc.
 Executive VP and CFO Sammons Distribution, Inc.
 VP and CFO Vinson Supply Company and Continental
Emsco Company
 Started or Managed Over a Dozen Companies In Europe,
Mexico, Canada and Asia
 MBA – International, University of Dallas

3. ALM Company – What We Do
Advisory and Project Services for Manufacturers,
Marketing Companies and Value Added Distributors
Supply Chain Mgt. & Global  Global IT Systems,
Sourcing Performance Optimization
and Security
Building Private Brands
 Global Expansion
Restructuring / Interim /
Crisis Mgt.  Export Compliance &
Training
Capital Sourcing

4. About Maersk Line
 Flagship Company of A. P. Moller – Maersk Group
(Danish)
 A. P. Moller – Maersk Group $60B Revenue in
2011
 Segments:
 Maersk $27B or 45%
 Oil & Gas $12.6B or 21%
 Retail and Banking $20.4B 34%

5. A. P. Moller - Maersk
 115,000 Employees
 130 Countries
 Founding Family Trusts Control 58% of Share
Capital and 76% of Voting Rights
 Family Not Known For Explicit Commitment to
Environmental Issues; However Reputation of
Company Worldwide Extremely Important

6. Origins of the Container
 In 1795 Bejamin Outram Started Carring Coal In Wooden
Containers That Could Be Shipped on Canal Barges
 In 1830’s The Liverpool and Manchester Railway Started
Carrying Containers From Canal Barges to Railways
 WW II Australian Army Used Wood 20’ Containers
 At End of WW II US Army Used Specialized Containers For
Ocean Shipments
 1952 US Army Coined the Term CONEX (Container Express)
 1955 Malcolm McLean Developed the Modern Intermodal
Container

7. Maersk Line
 Worlds Biggest Container Shipping Company – 660
Owned or Chartered Vessels,17% of Industry
Operating Fleet
 47% Owned / 53% Chartered
 Maersk Ships Average 8 yrs. / Competitors 12-15
 It’s Vessels Make Over 70,000 Port Calls Per Year

8. Maersk Line
 Over 100,000 Customers
 Long Term Contracts (Appx. 1 Yr.) Vs. Spot Price
• 50% Long Term
• 50% Market Spot Price Customers
 25% Key Customers Like Wal-Mart, Nike, Tesco
 15% Key Freight Forwarders
 60% Small Customers and Other FF

9. Competitors
Controlling Capacity
Company Owner Share
Maersk APM Foundation 17%
MSC Aponte Family 14%
CMA CGM Group Saade Family 9%
Hapag-Lloyd Balin Consortium 4%
COSCO Chinese State 4%
APL Temasek (Singapore) 4%
Evergreen Chang Family 4%
CSCL Chinese State 4%
Hanjin Shipping Hanjin Group 3%
MOL Mistui 3%

10. Business Conditions
 First Ever Annual Loss 2009
 Global Recession
 Industry Over Capacity (Vessels Lay Up)
 Commodity Pricing (Strong Price Sensitivity)
 China Changing Focus From Export Economy To
Domestic Market Driven

11. Container and Other Large Ship Lay Up
 Hot Lay Up / Cold Lay Up
 As of December 2011 = 210 Ships
 Malaysia, Indonesia, Philippines

12. Cost and Security Issues of Lay Up
 Cold Lay Up $1,000/day | Hot Lay Up Much More
 $450B In Shipping Company Debt For Laid Up
Container, Bulk and Tanker Vessels Worldwide
 Security Issues:
Environmental
 Personnel & Crew
 Physical Factors (Terrorist, Theft, Fire, Other)

13. Maersk’s Strategy
 Three Fundamental Challenges to Differentiate
Itself From the Industry:
 Unreliability
 Complexity (Hard To Do Business)
 Environmental Impact

14. Reliability
 Goal To Become Industry Leader
 Already Leader in On-time Delivery at Appx. 80%
 New Goal Is Further Improvement … Reduce
Customer’s “Just In Case Inventory”
 “Daily Maersk” Asia – Europe Route 95% On-time
Goal … Requires 70 New Vessels
 All Service Ports Operate Entirely As Planned
 On Other Routes Work With Terminal Partners To
Reduce Time In Port by 30%. Already Achieved
10% Reduction

15. Simplicity
 Immense Paperwork Flow To Move Goods
 Streamline and Digitize Much Of The Paperwork
 Order and Follow Cargo Online
 Simplified Documentation Process
 Track Cargo
 Automatic Notification
 IT System Interface
 Improved Customer Service

16. Environment … “Sustainability Strategy”
 Industry Environmental Impact:
 Ship Exhaust Emissions From Bunker Fuel
Considered a Large Source Of Greenhouse Gas
Emissions
 Thought That Climate Change Occurring Because
Of Greenhouse Gas Emissions From Human
Activity
 Maritime Shipping Accounts For 3.3% of Global
Emissions
 Bunker Fuel Releases 2,000x More Sulfur Than
Diesel Fuel

17. Worlds Largest Ship Engine
 12 Cylinders
 2,300 Tons
 95,000 HP
 102 RPM
 250
Tons/Fuel/Day
 Made In Korea
 Wartsila – Sulzer RTA 96-C
 Maersk Emma

18. Manufacturers Of Largest Marine Engines
Wartsila – Sulzer Finland
MAN B&W Germany

19. Other Shipping Environmental Issues
 Ballast and Waste Water
 Garbage
 Scrapping Old Ships

20. A. P. Moller – Maersk Group Strategy ...
“Sustainability”
 Four Key Themes:
 Environment and Climate Change
 Health and Safety (Includes Piracy)
 Social Responsibility
 Responsible Business Practices (Similar To SOX,
FCPA and Dodd-Frank)

21. Maersk Line Environment Goals
 Maersk To Become Global Leader In Low-Carbon
Shipping
 Lead The Industry Toward Zero SOx Emissions
 Reduce It’s Impact On Marine Environment
Achieving These Goals Would Meet the Group’s Environmental
Sustainability Initiative.

22. Types Of Basic Containers
Basic Containers
20' Dry Ocean Frt.
40' Dry Ocean Frt.
40' Collapsible Flat Rack
20' Open Top
40' Open Top
45' High Cube
20' Reefer
40' Reefer
40' High Cube Reefer
20' Flat Rack
40' Flat Rack
20' Tank

23. Actions To Date
 Slow Steaming (Save Fuel & Less Emissions)
Speed Reduced By 27% … What was impact on
customers supply chain?
Sulphur Emissions Reduced, But Fuel Costs
Increased From Using Diesel Fuel While At Berth.
Diesel Fuel $250/Ton Higher.
Developing Scrubber Technology To Clean
Exhaust Gases For Future Vessels

24. Actions To Date
 Protecting Marine Environment:
 Chemical-free Ballast Water Technology On 100%
Of Owned Fleet
 All Waste From Owned or Chartered Vessels
Disposed of In Ports
 Strategic Partnerships with Research Institutions
and Customers to Provide Research on State of
Worlds Oceans

25. Actions To Date
 Technical Changes:
 Ordered 20ea. 18,000 TEU (Twenty Foot Equivalent
Units) Triple-E Vessels - $3.8B For Asia-Europe
Trade. World’s Largest By Capacity
http://www.worldslargestship.com

26. Triple-E Vessels Advantages / Disadvantages
 Designed To Run At Slower Speeds
 59% Lower Unit Cost & 50% Lower CO2 Emissions
/ Container Than Industry Average
 “Cradle-to-Cradle Passport” End of Life
Decommissioning
 So Large Only Select Ports Can Handle
 Risk of Industry Overcapacity if Everyone Orders
Bigger Ships (Competitors Are Ordering Bigger
Ships)

27. New WAFMAX and SAMMAX Fleet
 West Africa Max (WAFMAX)
 $2.0B, 22 Ships, 4,500 TEU’s
 Largest Vessels Deployed On West Africa Routes
 South America MAX (SAMMAX)
 $2.2B, 16 Ships, 7,450 TEU’s
 Shallow Draft … 39 Feet
 Largest Vessels Deployed In South America

28. More Action Taken
 Existing Vessels:
 $10Mea. Waste-heat Recovery Systems For Many
Vessels
 New Hull Coatings
 Environment Certified Shipyards to Scrap Ships
… Increased Cost $20M on 10 Vessels.
 New Fuels … Biofuels

29. Selling Sustainability
 Maersk Wanted To Be Industry Leader In
Providing Transparency and Environmental
Information To Customers
 Provided Monthly Customer Scorecards
 Educate Customers On Environmental Impacts Of
Transportation Industry
 Customer’s Reaction Was Environmental
Concerns Are Good, But Price Is Most Important

30. Conclusion
 Soren Skou, CEO Maersk Line:
 Concerned Sustainability Approach Not Working
With Customers
 Concerned It Would Not Allow Differentiation
Between Maersk and Competitors
 CMA CGM, Hapag-Lloyd had CO2 Calculators To
Measure Carbon Footprint Of A Shipments Journey
 APL Named Sustainable Shipping Operator Of The
Year For 2010

31. Current Update
 Shipping Cost of 20’ Container From West China To
Port of LA in 2009 = $700; Today = $2,000 / 286%
Increase
 May 2012 Increased Rates 30% (Price Fixing With
Competitors?)
 Global Recession Continues, European Volumes
Continue To Decrease, Current Estimate 4% Global
Increase In Volume For 2012
 Lost Record $599M 1st. Qtr., $227M Profit 2nd. Qtr.

32. Choice Of Assignment Questions
 Should Maersk Line Change or Create A New
Strategic Plan? Accuracy Of Strategic Forecast?
 Should A. P. Moller – Maersk Group Consider A
Strategic Redeployment (Sale) Of Maersk Line?

33. Big Picture Issues
 Can A Commodity Item or Service Command A
Premium Price?
 The Cost to the World Economy Caused By the
Dogma of “Human Activity Causing Global
Warming and That Global Warming Is Bad”?
 Impact On Continued European and US Recession
 Impact of Cap and Trade (Tax)

34. More information about Lee Mulkey can be
found at his corporate website:
www.ALMCompany.com or
www.Linkedin.com/in/LeeMulkey
See his blogs on Marketing Channel
Management, Global Supply Chains,
Keeping Mistakes Above the Waterline and
The CEO, The Supply Chain and the Zone
of Indifference. “Golden Chains Means Big
Gains” Texas CEO Magazine:
http://bit.ly/LH7OBn