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MAERSK LINE AND THE FUTURE

OF CONTAINER SHIPPING

GROUP 4:
ASWATHI UNNI (06)
BAIJU DESAI (08)
KARAN VASHEE (24)
RAVI THAKKAR (34)
SANYAM SANGHAVI (35)
MAERSK LINE

 World’s largest container shipping company- 660 owned and chartered vessels (17%
of industry’s operating fleet
 Flagship company of Danish conglomerate A.P. Moller-Maersk Group
 First ever annual loss: 2009 (The sluggish global economy severely depressed
container rates)
 In 2012, set out to differentiate itself to maintain its position as the global leader by
focusing on the following three differentiators:
 Reliability
 Ease of doing business
 Environmental performance
CONTAINER SHIPPING INDUSTRY
 Flow of container traffic: manufactured goods from Asia going to consumers in
Europe and North America (Largest share of containers)
 Both corridors represented 12% and 15% of global container trade respectively.
 Intra-Asian market: close to quarter of global trade. (2010)
Customers:
 Purchased capacity on
 Spot market or
 Negotiated contractual freight rates with carriers

 Largest customers tendered their total predicted shipping needs annually to carriers,
sometimes forcing them to accept lower rates
 Price sensitive: resulting price competition among carriers
Major Costs:
 Terminal costs: fixed fee to dock the vessel, fee per container for unloading, loading, storing etc.
 Vessel costs: investments required for weekly departures
 Fuel costs: consumed large amount of fuel (bunker fuel: rise in fuel prices)
Competition:
 Top 10 container operators made up 66% of the capacity in the market.
 Prone to sharp swings in container rates (driven by changes in global demand and capacity utilization
in market)
 Placed orders for extra capacity when rates and returns were high before 2008. Extra capacity hit
market when demand was weakest.
 Shipped volumes decreased approx. 10% and rates fell by 26% (2009)
ENVIRONMENTAL CONSEQUENCES

 Main pollution: exhaust emissions from heavy fuel oil powering ship engines
 Large source of GHG emissions- linked to climate change (long term impact)
 Maritime shipping accounted for 3.3% of global emissions, expected to more than double by 2050
 Combustion of heavy bunker fuel- emission of sulphur oxides (SOx), nitrous oxide (NOx), and other particulate
matter (predominantly local and shorter lifespan)
 Causing smog, acid rain: could lead to cancer, asthma and premature deaths
 To reduce sulphur content:
 Install scrubber equipment or
 Switch to light fuel oils (cost 40% more than bunker oil)
 International nature of the business: regulation of shipping difficult (broader standards difficult to coordinate at
national level)
REGULATION OF SHIPPING INDUSTRY

 International Maritime Organization (IMO) sets industry standards: 170 member states
 Purpose: adopt treaties that improve safety and security of international shipping and
prevented marine pollution from ships, including all kinds of emission.
 Standard or regulation adopted by IMO to be implemented at country level signatories.
 IMO was working on market-based and non market-based measures
 Non market-based measure: Energy Efficient Design Index (EEDI)- set of design standards to
stimulate innovation and technical development related to efficiency of new vessels.
 Emission- non-linear function of speed (speed educed by 20%, emission reduced by 40%)

 Market-based measure: carbon tax or levy on fuel as well as cap-and-trade system


LEAD QUESTIONS

Q1. Do you believe climate change is real, and should companies act now to remain
competitive?
Ans.
 Yes, climate change is real
 Scientific evidences such as high carbon levels, shrinking ice sheets and global temperature rise backs this fact.
 Accounts for 3.3% of global emissions
 Current competition is based on pricing
 Maersk want to become global leaders in low carbon shipping. It worked with regulators to increase industry
standards and wish to take the company and the industry towards zero SOx emissions.
 In future, complying with the industry standard will become mandatory requirement.
 Companies that manage and mitigate their exposure to climate-change risks while seeking new opportunities for
profit will generate a competitive advantage over rivals in a carbon-constrained future.
 Thus, companies should act now to remain competitive.
Q2. Could sustainability really provide Maersk Line with a competitive advantage in an industry that
was considered to be commoditized?
Ans.
 Yes
 Earlier Maersk used to enjoy price premiums up to $700 per container (mid 1990s) however the price
competition created by the commoditization of liner shipping and the fragmented industry effectively eroded any
rate premium.
 Survey done by Maersk Line found that 80% customers considered (or would in future) sustainability factors in
their selection process.
 Progressive companies like Unilever had articulated a vision of doubling its business while reducing its supply
chain footprint- environmental performance and transparency were expected to become an entry requirement to
win business.
 Further, small customers can be inclined to do business with the Maersk Line by making them aware about the
impact of emissions and by providing transparency and environmental information to customers.
Q3. Could Maersk Line use it to differentiate itself from the competition?
Ans.
 The price competition has created commoditization in the shipping industry, thus sustainable shipping can be used
as a differentiator.
 Maersk Line is focusing on three differentiators:
 Reliability
 Ease of doing business
 Environmental performance
Q4. Container shipping industry faces critical moment – how do you evaluate the future?
Ans.
 Maersk Line have expectations that the Asia-Europe trade route will show substantial trade growth and hence
have made large orders for new vessels.
 From 2011-2015, increase in the demand on the Asia-Europe trade route was about 5%-8% (Hope)
 Comes with risks like:
 Creating overcapacity in the market as the competitors may also follow the same suit.
 Collective overinvest
 Corresponding trade growth may not occur
 Strategic Alliances of large shipping lines may benefit

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