MAERSK’s efforts to reduce the impact of volatile freight rates

MAERSK’s efforts to reduce the impact of volatile freight rates on its financial results are making progress as the Danish group expands its range of door-to-door services and digital products.

The goal is to ensure that revenue from stable business activities grows faster than income generated from ocean freight rates that are hugely cyclical, AP Moller-Maersk chief executive Søren Skou said this week.

He also outlined the new financial reporting system, to start with the coming interim results. that will bring greater transparency to the performance of different activities and separate out the impact of freight rates.

“The new format will reflect the fact that we an integrated business focusing on our customers’ value chains,” Mr Skou told the annual general meeting.

The four segments will consist of the ocean shipping activities of Maersk Line, Hamburg Süd and related operations: logistics and services activities of Damco, Maersk Line and APM Terminals on land; terminals and tug operations of APM Terminals and Svitzer in and around ports; and manufacturing activities of Maersk Container Industry and other businesses in the portfolio.

“That new segmentation will make it easier for everyone to follow the development within those services that are not purely ocean freight,” said Mr Skou.

“This is an important aspect of the strategy to create the highest growth and increase earnings in those parts of the business that are not tied to freight rates, and therefore minimise the cyclical part of the business.”

In the past, this ability to hedge one part of the business against another was achieved through the group’s energy activities, which are being sold off as Maersk moves from being a conglomerate to an integrated transport and logistics company.

“We wish for this more stable revenue to grow faster than the traditional ocean freight business, and to come from new services and products, many of which can be offered digitally, and from more door-to door transport and financial products,” said Mr Skou,

Customers must experience a coherent and integrated service with intelligent digital interfaces that make it easier and more straightforward to do business with Maersk Line, he continued

Maersk has already come a long way over the past year, he told shareholders, citing the fact that more than 80% of price inquiries are now received online, compared with zero a year ago.

The Danish group first unveiled plans to transform itself from a shipping and energy group to one focused purely on transportation in 2016, with the aim to reduce its exposure to external factors such as freight rates and oil prices over which it has very little influence.

Digital services are at the core of this massive shake-up, with Mr Skou saying that Maersk already operated one of the largest business-to-business platforms in the world, measured by revenue. This, he said, would form the basis of Maersk’s digital transformation.

Digital technology will not just improve customer services, but also improve productivity of assets such as ships and ports, so enabling Maersk to serve existing and new accounts more cost effectively, said Mr Skou.

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