On September 19, 2018 Maersk announced a restructuring of its business units that will include merging part of DAMCO, the world’s 18th-largest freight forwarder, into Maersk’s core liner business in order to create an “end-to-end” supply chain services company.
The announcement isn’t really the beginning of a reorganization but the end of a multi-year strategic shift for the world’s largest steamship line. Here’s our take on the implications of Maersk’s maneuvers:
The move: Since 2016 Maersk has sold its Maersk Oil business, and spun off its drilling business.
Our take: While these deals leave some industry experts such as Hedging Beta’s Alessandro Pasetti asking “what’s left of APMM?(Maersk’s parent organization)”, the simple fact is that Maersk was focused on getting leaner.
The move: In January 2018 Maersk committed to a joint venture with IBM to build a Blockchain-enabled trade-services platform, recently named TradeLens.
Our take: Maersk clearly sees the opportunity and need to be the leader of international trade, supply chain and logistics digitization. Moreover, they realized that a true technology powerhouse like IBM would have to be vested in the process alongside them to ensure successful execution.
The move: In February 2018 Maersk announced its intentions to become “the global integrator of container logistics.”
Our take: Reaching deeper into the logistics process than ever before to realize future growth and profitability is the objective at Maersk. What’s not totally clear yet is whether they will be an asset and services-based integrator like UPS or FedEx, or a technological integrator using TradeLens.
The move: As part of the September 19th reorganization announcement, Maersk also announced plans to combine several of its liner brands into one operating structure.
Our take: Maersk’s protecting “the franchise” by bringing organizational efficiency to their core liner business.
So now that Maersk is lean, mean and getting set to deploy a cutting-edge technology platform, what’s the growth story? Leaving aside the liner business, let’s look at the logistics and supply chain integrator approach and what it could yield:
- The idea of Maersk as an asset-based integrator leaves us wholly unimpressed. It’s neither innovative nor lucrative. The economics don’t make sense. Integrators like UPS and FedEx operate air cargo, LTL trucking, supply chain solutions, trade finance and insurance businesses as independent profit centers that offer customers and competitors end-to-end or “a la carte” logistics service offerings. But the massive money maker for them is in the next-day-air document and packages businesses. Container shipping, by virtue of the laws of physics, just can’t offer that kind of a premium expedited service. And, as we’ve often said, there’s no business-class seat (or slot) on a container ship to up-sell.
- But the integrator opportunity that has awesome potential is the “Maersk as a platform” business. A platform business uses third parties to create more value for customers and the platform owner. Need a successful example of a big company developing a platform business? Let’s look at Apple, and more specifically the iPhone. iPhone is Apple’s proprietary device, and iOS is the software that powers it, but it is the community of third-party app developers who make the platform more valuable and also create distribution revenues for Apple through the AppStore. Maersk’s gambit then would be to make the liner business it’s core product, TradeLens blockchain solution the operating system, and freight forwarders, logistics tech companies, truckers, customs brokers, etc. the universe of “app developers.”
At this stage it would be reasonable to wonder why the asset-based integrator model is even up for consideration if the blueprint for a successful platform exists?
Firstly, let's keep in mind that this is a massive company heading into uncharted waters, in an industry that isn’t built for rapid or drastic change. So Maersk needs a hedge. If the industry does not accept its platform as neutral and mutually beneficial, then the strategy falls flat. At that point Maersk would have to fall back into a traditional restructuring approach whereby DAMCO would likely be sold to another global freight forwarder (as is the current speculation), and a leaner company with a streamlined liner business could continue to be successful. Pasetti, in a September 26, 2018 article in The Loadstar, goes as far as suggesting that Maersk “may be eyeing a larger deal with DSV...with the two merging eventually,” referring to global freight forwarding giant DSV.
Secondly, all platforms come with “native apps” to ensure a basic level of functionality. To continue with the Apple example, the iPhone itself was a runaway success that disrupted the mobile phone market even before third-party apps came onto the scene. Why? Because it offered a pre-installed browser, an email client, texting and other features without waiting for Chrome, Gmail or WeChat to be invented or iOS-ready. This is where Twill enters the picture.
Launched as DAMCO’s foray into digital freight forwarding, it now seems apparent that Twill is a tech startup incubee that can be seeded with DAMCO’s volume. The immediate result being that TradeLens has at least one carrier and one freight forwarder, a trade-finance bank, and several active vendors and sub-vendors -- an integrator -- to deliver immediate benefit to its users while other participants come aboard.
So what does this all mean for your business?
- Freight forwarders: You’re safe. In a recent interview with JoC.com, Maersk Lines CEO Karsten Kindahl stated, “We have no intentions of declaring war on one-third of our customers.” In fact, under the platform business model, you’re about to add more value to Maersk’s future than ever before. Plus, you may finally wind up with a tech stack that will keep you relevant as e-commerce companies increase their presence in logistics.
- NVOCC’s: This is a tough spot to be in. It’s abundantly clear that someone’s going to build a better way to buy and sell full-container capacity and turn it into some sort of spot market. It could very well be Maersk, since a platform that reaches ocean freight forwarders will almost certainly have a spot market function. The days of FCL sales, especially for neutral NVOCC’s, could be nearing an end (and LCL may not be far behind) unless they join a neutral platform focused on delivering the same benefits to their businesses.
- Shippers/Cargo Owners: A platform that includes your best service providers that doesn’t force you to use the offerings of the platform owner is the development you’ve been dreaming of for the past 60 years or so.
- Carriers: Beat ‘em or join ‘em. If Maersk’s platform approach can satisfy concerns over neutrality, then smaller carriers must almost certainly join in for the efficiencies they can realize in terms of capacity marketing and productivity gains. But for others, this is the opportunity to build a competing platform. Why? Once a platform succeeds, it can also lift up its competitors or create new opportunities. Following the tech example, Apple was the innovator and continues to reap massive rewards from the iPhone ecosystem. But are they the biggest mobile platform business? No, that distinction belongs to Google Android. How often do you get to be second and end up as Google?
For all the startup action in logistics over the past few years, and for all the skepticism over the ability to automate a relationship-driven business that is slow to adopt technology, the Maersk move proves one thing: a tipping point is at hand. The conversation has shifted from “if” the business can be automated to “when” it will be automated, and this presents great opportunities for the industry.
It also raises the stakes in terms of disruption, as simply getting the freight business online is now inevitable. But it is also the bare minimum that a company can and must accomplish.
What remains unchanged, however, is that there will be winners and losers in the race to automate the logistics process. Let’s make sure you’re on the winning side.
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