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Primary activities

In document Finance and Strategic Management (Sider 47-51)

5 S HIPPING I NDUSTRY A NALYSIS

5.5.1 Primary activities

Troels Hedegaard & Morten N. Nielsen

Troels Hedegaard & Morten N. Nielsen are not always the answer to meet costumer needs. To this point, Maersk recently cancelled an option to order six super-sized Triple-E vessels with a capacity of 19,630 TEU (Ship & Bunker, 2015 November 4).

Maersk thereby proves that it in the current market seeks flexibility over bigger vessels and lower per unit costs.

In the pre-sea stage it is crucial for ML to provide a service that is customer friendly. A major factor here is in regards to the booking system where ML is working at the forefront of the industry to deliver a high quality online platform. Furthermore, the firm is providing equipment and haulage service, as its competitors, while the strategic alliance and choice of ordering smaller vessels are increasing the capacity flexibility of the company. However, it is not in the pre-sea chain ML can deliver significant value for the customers or differentiate itself.

5.5.1.2 Midstream

While the pre- and post-sea transport stages are mainly supportive, the at sea transport is where ML can drive value creation. This can mainly be seen in regards to strategic alliances, reliability and cost-efficiency.

5.5.1.2.1 Strategic alliances

The thesis has already described the different alliances in the industry, which provides alliance members to access routes across the globe, while driving positive synergies through improved economy of scale and asset utilization, increased bargaining power and customer base, more frequent departures and faster transit time.

Until recently, ML was considered to be one of only a few firms with the resources and routes needed to cover transportation on a global scale. However, in 2014 ML changed its strategy and formed the 2M alliance, which now comprises 193 vessels, has a capacity of 2,4 million TEU, includes 77 ports on 22 different strings and last until 2025 (Lloyd’s list, 2016). The main focus providing the customers of the Asia-Europe, Transatlantic and Transpacific trades with attractive service in terms of coverage, frequency and schedule reliability. Additionally, it will incur significant cost savings through coverage and economies of scale (Vogdrup, 2014 July 10). The new alliance can prove to be a significant value driver for ML.

5.5.1.2.2 Reliability

ML was the first company to introduce reliability as a measure of service. While many of its competitors initially did not see the value of delivering on time, ML increased its focus on timely delivering, as it following the financial crisis launched the Maersk Daily, a system lowered the price for the customer if the containers were not delivering on time (Andersen, 2013 February 8). For a long period of time ML was the

Troels Hedegaard & Morten N. Nielsen most reliable company in the industry, but in late 2012 it lost the title to Hanjin, a South Korean conglomerate. Recently, ML has had to cancel the initiative, as the firm realized that too few customers were willing to pay the extra cost for a more reliable service. Dropping Maersk Daily must also be seen in the light of a change industry where competitors have increased its focus on reliability. Consequently, reliability is no longer a feasible way to differentiate the business (Ritzau Finans, 2015 March 9).

ML is still considered to be a top quartile performer with a reliability score of 82% and a gap of 5.5% against the industry average of 76.5%. ML was in late 2015 the 4th most reliable shipping line after MOL, APL and Wan Ha, with a solid gap of around 11% to MSC (Maersk, Reliability: ML remains top quartile performer).

If the market re-establish itself with higher and more stable rates it is possible that reliability can a factor for diversification, as more customers will be willing to pay extra for a more reliable service.

5.5.1.2.3 Cost efficiency

Cost and cost control are crucial for shipping lines and directly determines the profitability of every firm in the industry. Three factors in the sea-transport have been identified to add to the cost efficiency parameter:

slow steaming, larger vessels and strategic alliances.

Slow steaming

Slow steaming is no longer a new phenomenon in the shipping industry. Most liners have decreased the operating speed to 20 knots and some even resorted to super-slow steaming at 15 knots. However, the true value of it has been subject to a lot of discussion. The main disadvantage is that the time at sea is increased and that it entails higher inventory costs. On the other hand, the liners have been able to reduce costs, since slow steaming increases fuel efficiency, which is the single biggest cost of operating a vessel. Additionally, the low fuel consumption is adding an environmental benefit with reduced emissions (Kloch, 2013).

The drop in oil prices have simultaneously driven bunker prices down, which started speculations if shipping liners would consider increasing the speed again. However, ML has made it clear that it is still a part of its toolbox and way of staying competitive (Kristiansen, 2014 October 22). Slow steaming does also have the positive effect of increased reliability: If a vessel is sailing at full speed, it has no buffer time if delayed, whereas a slow steaming vessel can increase speed to make up for lost time (Kloch, 2013).

ML was one of the first companies to introduce the slow steaming technology, when it in 2008 and the following years lowered the speed by 27% on average. To compensate for the slower speed Maersk introduced more frequent departures on its routes. Estimates show that the reduced speed decreased fuel consumption by 40%. Additionally, emission levels were decreased with 7% in the years following the launch of the initiative (New Europe, 2011).

Troels Hedegaard & Morten N. Nielsen

Big vessels

In 2011 ML ordered 20 ships of 18,270 TEU, the first ultra-large vessel generation, where the ambitions of the vessel were based around three principles: economy of scale, energy efficiency and environment. The Triple-E became the largest containership in the world and set new standards in regards to energy efficiency and environmental performance. It was the first large vessels where the engine was designed for slow steaming, and thereby further decreased CO2 emission by 50% per container moved, compared to the average on the Asia-Europe route.

The economic performance since the launch has been impressive for the Triple-E vessel. Benchmarked against the Emma Class, ML’s second biggest vessels with a capacity of 15,000 TEU, the vessel is 25%

more fuel-efficient. Compared to the industry standard, a TC class of 13,100, the Triple-E is 36% more efficient. Consequently, the Triple-E’s daily fuel consumption at sea is less than the benchmarked vessels, even though it has a higher average speed (Maersk Maritime Technology, Triple-E set new standards).

However, ML does no longer have the biggest vessel, as MSC (19,224), CSCL (19,100) and UASC (18,800) have built bigger and even more efficient vessels. Before the drop in freight rates there were speculations of vessels that would be able to carry up to 30,000 TEU (Kremer, William, 2013 February 19).

It is important to notice, that the ultra-big vessels are only cost-efficient as long as the liner companies are utilizing the capacity fully (Interview: Martin Herrstedt). In addition, the size of ultra-large vessels poses a problem, as they cannot be redeployed to other routes due to constraints in ports and canals. In November 2015 ML decided to cancel its option to buy an additional six Triple-E ships, while it at the same time cut 4,000 land-based jobs. Anders Boenæs confirmed this trend in the beginning of 2016, where he externally explained that flexibility would become a more important measure of competitive advantage in the future, as the volatile industry makes it to forecast future demand. The new strategy of ML is opposite many of its direct competitors, as they are expecting delivery of a record high number of ultra-large vessels in the coming years (Skjerning & Askjær, 2016 March 2).

5.5.1.3 Downstream

The development and improvement of MyMaerskLine.com have further eased the post sea stage for ML’s customers. It is possible for customers to access and manage its bookings, follow the shipment, receive and pay invoices and much more all day and night. It is a fast, reliable and user-friendly platform that has eased the process. The post-sea stage is to a large extend driven by the same characteristics as pre-sea where the online platform has increased efficiency, while ML’s network and haulage services provide a to-the-door service. The value derived from this stage is minimal, which is why it will not be further investigated.

Troels Hedegaard & Morten N. Nielsen

5.5.2 Support activities

In document Finance and Strategic Management (Sider 47-51)