Maersk’s Strategy in “Asia-Europe” Route

Reporter Xu Hua

Recently, the world’s biggest container shipping company Maersk has taken frequent actions, such as signing with DSME the contract of 20 “3E” container ships,which is the biggest,most efficient and environmentally ship globally up to now. Soon after that, Maersk shocked the industry once again by launching a new service named “Daily Maersk”. Will Maersk’s actions lead to self-destruction or other plans?

Impressive move of Maersk

Affected by the double whammy of economic recession and overcapacity, the prospect of shipping market is not optimistic and the sale condition is deteriorating; however,we can always witness some shipping companies ordering ships in an unexpected way. To sum up, these orders are featured by two "larges": large in size and large in quantity. The great contrast between the two “larges”and the fundamental market condition makes the current shipping market foggier.

Maersk's move makes it a barometer of the market.Since the end of last year, Maersk has spurred many other shipping companies to swarm into shipyards to order a large number of large ships of 10,000 TEU or above, although the outlook of most of those companies is still deteriorating. On the one hand, the market expectation is not optimistic; on the other hand,the consequences of the investment competition are unpredictable. At the time of market downturn, large shipping companies take initiatives to snatch market shares and remodel market rules, while the passive defenders could only stand in quandary at the crossroad of entering or exiting the market. However, the market has not left much time to those taking a wait-and-see attitude and the opportunity is fleeting. To avoid being eliminated from the market, other companies have no alternative but to follow suit, which makes the competitive situation of shipping market heat up.

What’s the intention of Maersk?

Some said that Maersk aimed to punish the troublemakers. After experiencing the first-ever loss in its history of one hundred years in 2009, Maersk, like many other shipping companies, sealed up its container ships boasting the highest speed in the world, combined its shipping routes, and streamlined its administration. As pointed out by some experts, Maersk considered that the irresponsible shipping companies pushed the whole shipping industry into the abyss. In Maersk’s opinion,the shipping companies which ordered a great number of newbuildings during booming period are the chief culprits and should be punished. After adjustment, Maersk recovered soon in 2010. This is the revenge version of interpreting Maersk.

However, Mr. Xu Jianhua, Director of Shipping Research Institute of Shanghai Maritime University, deems that Maersk’s primary purpose is to expand market share and widen the gap with his competitors. Secondly, Maersk wants to control the Asia-Europe route. In addition, the shipbuilding price, having fallen by 1/3, is relatively low now, so it is a good time to get a rock-bottom price.Then, the cost per TEU will be greatly reduced, which provides a good condition for Maersk to lower shipping price.

Taking preemptive measures in the crisis is often the first choice for the master player. Mr. Li Zhiyuan,Deputy General Manager of CCS Technical Department considered that the tightened shipping market will lead to higher survival threshold. Large-scale companies,by virtue of their network, financial, talent and technical advantages, will or is expanding R&D and investment in marketing, fleet efficiency, route planning, policy implications (including the development of relevant international and national policies), in order to further squeeze out small and weak companies and even large scale companies which have not timely prepared for adjustment. In so doing, they aim to achieve the target of maintaining and increasing market share. If such trend continues, it is foreseeable that the world’s main shipping routes are to be monopolized by a few large enterprises or groups.

How to assess the crisis?

However, how can Maersk assess the reasonableness of its investment in the recession market? Mr. Xu Jianhua considered that Maersk as a century-old company must have an integral and scientifi c decisionmaking system. For an enterprise which is highly vigilant at commercial secrets, it is hard to fi nd out what is the basis of its decision-making, but looking beneath the surface, we can notice that Maersk is optimistic about the prospects of China and even Asia's economy.Of course, the market prospect is a key element for a company’s decision making, but it is not the suffi cient condition to its future success or failure. Apart from pressure from the overall environment, Mr. Jia Dashan considered that Maersk’s internal management capability is also facing challenges when making such a big investment. For large ships, it can realize scale effect only when it is fully loaded. This is another suspense that Maersk has left us, i.e. how to ensure suffi cient supply of goods?

In the experts’ opinion, this is one part of its strategic plan that has been deliberated for a long time. Although Maersk has taken great measures to target shipping industry, it is indeed a broader market layout that Maersk is mapping out.