Case Study – Maersk Line and Case Study – Maersk Line and the Future of Container Shippingthe Future of Container Shipping

A.A. Lee MulkeyLee MulkeyOctober 29, 2012October 29, 2012

ME 7366 Global ManufacturingME 7366 Global ManufacturingGraduate School of EngineeringGraduate School of Engineering

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

ALM Company – What We Do

Advisory and Project Services for Manufacturers, Marketing Companies and Value Added Distributors

Supply Chain Mgt. & Global Supply Chain Mgt. & Global SourcingSourcing

Building Private BrandsBuilding Private Brands

Restructuring / Interim / Restructuring / Interim / Crisis Mgt.Crisis Mgt.

Capital SourcingCapital Sourcing

Global IT Systems, Global IT Systems, Performance Optimization Performance Optimization and Securityand Security

Global ExpansionGlobal Expansion

Export Compliance & Export Compliance & TrainingTraining

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%

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

Origins of the Container In 1795 Bejamin Outram Started Carring Coal In Wooden In 1795 Bejamin Outram Started Carring Coal In Wooden

Containers That Could Be Shipped on Canal BargesContainers That Could Be Shipped on Canal Barges In 1830’s The Liverpool and Manchester Railway Started In 1830’s The Liverpool and Manchester Railway Started

Carrying Containers From Canal Barges to Railways Carrying Containers From Canal Barges to Railways WW II Australian Army Used Wood 20’ ContainersWW II Australian Army Used Wood 20’ Containers At End of WW II US Army Used Specialized Containers For At End of WW II US Army Used Specialized Containers For

Ocean ShipmentsOcean Shipments 1952 US Army Coined the Term CONEX (Container Express)1952 US Army Coined the Term CONEX (Container Express) 1955 Malcolm McLean Developed the Modern Intermodal 1955 Malcolm McLean Developed the Modern Intermodal

ContainerContainer

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

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

CompetitorsControlling 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%

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

Container and Other Large Ship Lay Up Hot Lay Up / Cold Lay UpHot Lay Up / Cold Lay Up

As of December 2011 = 210 ShipsAs of December 2011 = 210 Ships

Malaysia, Indonesia, PhilippinesMalaysia, Indonesia, Philippines

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)

Maersk’s Strategy

Three Fundamental Challenges to Differentiate Itself From the Industry:

Unreliability

Complexity (Hard To Do Business)

Environmental Impact

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

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

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

Wartsila – Sulzer RTA 96-CWartsila – Sulzer RTA 96-C Maersk EmmaMaersk Emma

12 Cylinders12 Cylinders

2,300 Tons2,300 Tons

95,000 HP95,000 HP

102 RPM102 RPM

250 250 Tons/Fuel/DayTons/Fuel/Day

Made In KoreaMade In Korea

Worlds Largest Ship EngineWorlds Largest Ship Engine

Manufacturers Of Largest Marine Engines

Wartsila – Sulzer FinlandWartsila – Sulzer Finland

MAN B&W GermanyMAN B&W Germany

Other Shipping Environmental Issues

Ballast and Waste Water

Garbage

Scrapping Old Ships

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)

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.

Types Of Basic ContainersBasic 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

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

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

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

Triple-E Vessels Advantages / Disadvantages

Designed To Run At Slower Speeds59% 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)

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

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

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

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

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.

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?

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)

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