The debate around A.P. Moller-Maersk’s identity as a tech or a transportation company caused a bit of a stir at the ocean liner late last year.
Maersk Ocean and Logistics CEO Vincent Clerc said why not be both and then some when asked to define the company in the context of that incident involving board member Thomas Lindegaard Madsen vehemently disagreeing with the head of the company’s forecast team, Soren Vind, that the Copenhagen company is anything but a shipping firm.
“I think we certainly still are a transportation company. We’re investing heavily in digitalization and tech so, in many ways, we also have emerging traits of a tech company internally,” Clerc told an audience gathered in Long Beach, Calif. Monday to hear him speak at the TPM22 Conference, produced by IHS Markit. “You can be all of the above, and that’s actually what we’re trying to be.”
The CEO tackled a range of timely topics against a backdrop that has seen Maersk evolve, perhaps to Vind’s point, via new digital endeavors and a bid to integrate logistics into its core business.
“There’s a real need for a new paradigm here,” Clerc said in speaking to where Maersk is at in its strategy, first announced in 2016, to be what it described as a global integrator of container logistics.
The executive said after two years grappling with the fallout of the pandemic, the company’s leadership is somewhat vindicated in plans made pre-Covid that address global infrastructure problems around the supply chain, the need to update an outdated just-in-time approach to inventory and the significance of technology in its transformation.
On that latter point, the company has done everything from offering online learning modules for employees, to fine-tuning its website to allow for bookings, access to required documents and other services to assist with cargo visibility.
“I think digitalization is going to open some really significant opportunities for smaller shippers to have more choice—more choice to deal with forwarders, or to go with carriers. Whatever they thinks suits them best,” Clerc said.
He declined to specify where the company sees itself in the progress of its transformation outside of saying, “I think our thinking has evolved here because we’ve also learned a lot over the past couple of years…. I think we’re just getting started, to be honest. And … look, everybody in the room is confronted with massive challenges in their supply chain today.”
Among the topics repeated throughout the first day of TPM22 was the subject of carrier rates, which Clerc addressed, saying Maersk has not operated with a focus on simply making money off its customers.
“We decided to listen to our customers and allocate more of our capacity to them rather than play the spot [rate] market,” he said.
Maersk roughly doubled its transpacific capacity, compared to pre-pandemic levels and agreed to what it calls its fair price approach to doing business.
Prior to the supply chain challenges brought on by Covid, Maersk’s business was roughly evenly split between short- and long-term contracts, the former typically associated with higher pricing. Today, the mix is roughly 75 percent long term and the rest short.
Current challenges haven’t stopped the company from thinking long, with a raft of acquisitions, including its most recent in February in which it shelled out $1.7 billion for Pennsylvania-based Pilot Freight Services. In November, it bought German freight forwarder Senator International in a transaction valued at $644 million, and it paid $3.6 billion in December for Hong Kong contract logistics company LEF Logistics.
The buying spree isn’t the first time the company has attempted a go at logistics, but it’s hoping to avoid previous stumbles.
“You get a lot of humility for why it hasn’t worked in the past because it’s actually pretty tough to do. Obviously when you’re trying to do something like this, it’s easy to be doubtful,” Clerc said of prior attempts at the logistics business, adding, “I don’t think you can predict the future by looking in the rearview mirror.”
Robert Uggla, incoming Maersk chair and the fifth generation of the company’s founding family, said about as much in a recent Financial Times interview sharing the lessons learned from prior missteps in logistics acquisitions.
“We live in extraordinary times,” Uggla went on to tell the publication in talking about acquisitions. “We are all mindful that there will be a time when freight rates normalize. We need to seize the moment.”
Clerc agreed rates are unsustainable at their current level and estimated they may begin to change in the middle of the year. The retailers large enough to charter their own ships last year—such as Costco, Walmart, Home Depot and Party City—in an effort to take control of the process are largely anomalies, according the executive.
“I think those who have tried, they have figured out it is not actually an easy thing to do…. So, no, I don’t think that this is a trend,” Clerc said, pointing out the experiment for many turned out to be a costly maneuver. “It’s not easy to actually do what we do. It works well when you have the network well run and you have the scale, but if you want to start from scratch, it’s a difficult thing.”