How Maersk Is Navigating The Unsafe Transport Industry

Each year, about 90% ofworld trade is transported by ship. Whilecommodities like oil and grain make up 40% of thatcargo large steel containers filled withappliances, smartphones and couches make up theremainder. Maersk, the world'ssecond largest container shipping company bycapacity behind MSC, transports about 1 in 5of those containers. In addition to its fleetof 672 vessels, the.

Danish-based carrier runsone of the globe's largest port terminal businesseswith 64 terminals. They are running a busservice. They are desperately trying tokeep the busses running on time along a fixed route. It's basically all thatthey don't, except their busses are somewhatlarger and they operate at sea. Maersk logged recordprofits of $29.3 billion.

In 2022, due in part topandemic induced buying and higher freight rates. Its stock price at thetime soared, but the company is flagging highuncertainty for the year ahead, as a shift inconsumer spending habits has brought revenue inline with pre-pandemic levels. Today, like itsrivals, Maersk faces a range of challenges,including attacks on vessels in the Red sea, adrought at the Panama.

Canal, as well as thethreat of higher tariffs related to a potentialTrump presidency. We knew that at some pointthe correction would come, and it did indeed unfoldhere in especially in the first part of the year. It feels like anincredible amount of uncertainty, anincredible amount of of curveballs that theindustry might be faced with over the nextperiod. The reality is, if.

You look back just fiveyears, throughout those five years, every singleyear would have had one, two, in some cases, maybefour of those similar challenges that theindustry was faced with. To offset some of itsrisks, the company is beefing up its end to endlogistics business, investing in last miledelivery and air freight. They're buying upairplanes, they're buying up warehouses, they'rebuilding out terminals,.

And they're buying uptrucking companies. That way, their customersbox, aka the container, they have control over itfrom when it is put on the vessel all the way toeither the distribution center of their client ortheir client's warehouse. About 11 billion tons ofgoods are transported by ship each year, or about1.5 tons per person. CNBC examines thechallenges facing Maersk and its rivalsHapag-Lloyd and MSC, and.

Looks at how the companyis trying to transition for future growth. Ocean shipping is anunpredictable business. The global supply chain isone of incredible volatility. With the war in Gazaraging in 2023 members of Yemen's Houthi movementattacked commercial ships in the Red sea, includingvessels belonging to Maersk. Maersk suspendedits Suez Canal operations.

And diverted its assetsaround the southern tip of Africa. Longer sailingsrequire more ships, additional containers anda lot more fuel. It is also meant higherfreight rates for ocean carriers. Freight rates have gone upupwards of four times the amount of where they werejust several months ago. About 12% of the world'sglobal shipping traffic, generally, passes via theSuez Canal.

Most of Maerskcompetitors ordered vessels during thepandemic shipping crunch, which has helped all theocean carriers alleviate pain around this newroute. In more normalcircumstances, this would have been disaster. Wewould not have had enough ships to do this.However, there are actually far too manycontainer ships right now. This is what allows theindustry to rapidly shift.

And now move the supplychains around Africa. Drought conditions at thePanama Canal impacted sailings to. In January 2024. Maersk informed clientsthat some canal traffic would need to shift totrains. 40% of all U.S. container traffic travelsvia the Panama Canal. They focused on the tradethat is coming from Australia and NewZealand.

They're dropping thecontainers off at the rail, and then it goesacross the country via rail, and then isreloaded onto another vessel to go up throughthe East Coast ports. Ocean carriers are alsocontending with potentially highertariffs on Chinese goods in the event of a secondTrump administration, as well as a possible strikeby the International Longshoremen'sAssociation, the largest.

Union for maritimeworkers in North America. At this stage, ourprediction, our expectation as anindustry is that we would hope that after that,everything just continues to be normal. Of course,the uncertainty is that we don't know 100% nowhether it would indeed be the case. But it could bethe industry's fleet size that has the longestlasting impact. The number of containerships in the industry will.

Grow by 18% over the nextfew years. We have too many shipsright now. That problem is solvedtemporarily because we have to go around Africa. But the moment the Redsea opens up again, we are straight back in tomassive overcapacity and Maersk will face the sameheadwind as everybody else in rapidly droppingfreight rates. And it faces otherchallenges too.

A container vesselchartered by Maersk, carrying the company'scargo crashed, into Baltimore's Francis ScottKey Bridge in March 2024. Maersk got its start inDenmark in 1904 when Arnold Peter Moller,along with his father Peter Maersk Moller,purchased two ships. Lucrative World War Icontracts helped propel the business. It builtships from 1918 until 2009, and it even ran a25,000 acre sugar.

Plantation in Tanzaniafor a time. Following the Second WorldWar Maersk was primarily transporting crude oil. But it was the revolutionin containers that was a turning point for thecompany. The first container vessel leftNewark Harbor in 1956. Maersk launched its firstcontainer route out of New Jersey in 1975. By the early 1990s, itwas the largest container.

Liner in the world, atitle it held for more than two decades. The 20 foot container,which can hold the equivalent of 50 to 60refrigerators, remains the backbone of the supplychain. From 1980 to 2017,container usage soared worldwide from 102million metric tons to about 1.8 billion metrictons. In 2023 just the endbound containers into the.

U.S. were carrying goodsworth a little bit more than $1 trillion. And if you relate that tothe population of the US, it comes out to theaverage of $3,000 per person. More containers meanbigger vessels. The average size ofcontainer ships has more than doubled since 2000,with the largest ships today carrying about24,000 20 foot equivalent.

Units, or TEUs, a unit ofcargo capacity. Stacked vertically thelargest ships would be taller than the EmpireState Building. There are roughly 5,500container ships in the world today. But it was the spike inconsumer spending, along with supply chainbottlenecks that vaulted Maersk's bottom line. In 2021 container freightrates jumped to five times.

Their pre-pandemiclevels. Maersk saw its volume increase by just3.6% in 2020 and 2021, and its revenue jumped 56%during that same period to $61 billion. Ocean carriers postedrecord profits in 2021 and 2022, totaling more than$400 billion. When it comes to the flowof trade, it is agnostic and it has to move. Mergers and acquisitionshave also transformed the.

Ocean carrier industry inrecent years. Today, the top fourcarriers control about 60% of capacity. In 2024,Maersk announced plans to enter into an operationalpartnership with Hapag-Lloyd. The newalliance, called Gemini, will comprise a fleet of290 vessels with a capacity of 3.4 millionTEUs. It's a very innovativeconcept that we're going to roll out between ourtwo companies.

In the end, that willbring much higher schedule reliability at similarcost and at lower emissions. Maersk had 2023 revenue of$51 billion, its Ocean business had revenue of$33.6 billion, and its land-based Logistics andServices business had revenue of $13.9 billion. To keep up with thesteady increase of containers going into theUS, Maersk is expanding.

Its operation in Mexico. They are investing in theport. They are investing in thewarehousing as well as their trucking. And soyou are actually seeing more trade from Chinabound for the United States coming into thecountry of Mexico. By using the connectionwith rails, by using our footprint of distributioncenters, we're now able to also provide ourcustomers with opportunity.

To serve their NorthAmerican market through an entry that is no longerjust the West Coast of the US or the East coast ofthe US, but could also be through Mexico. In 2023, Mexico became theUS's largest trading partner, with 15% ofChinese goods traveling via Mexico. That same year, therewere 31 million containers filled with cargoimported into North.

America and 14 millioncontainers filled with cargo exported from theregion. In reality, you areexporting more empty air from North America thanfull containers. Maersk is also makingother moves on land and in the air. It wants to be akey player, handling goods from the factory floor tothe end customer. With the pandemic dollars,Maersk went out on a buying spree, if youwill, to expand their.

Logistical footprint. So in 2022, theyreportedly spent $5.9 billion on threesignificant acquisitions that expanded theirfootprint. In 2022, it bought USbased last mile delivery provider Pilot FreightServices in its 87 North American locations forabout $1.8 billion. It purchased Hong Kongbased LF Logistics and its more than 220 warehousesfor $3.6 billion, and.

German logistics firmSenator International for $644 million. Its largest business isair freight. The Red sea now presentsan increase in transit time of three weeks. What if we just takewhatever is already on the water, redirect it to aDubai and put it on an airplane? And the e-commercelogistics market is.

Expected to grow almost19% annually to reach $819 billion by 2027. But expanding into groundbased logistics does create some headwinds forthe company, including moving into directcompetition with its own customers. The moment you go out as acarrier and say you do logistics end-to-end, itbecomes more difficult to secure space on the othercontainer lines.

And this is importantbecause if your logistics provider, you arecompeting with, say, a Kuehne Nagel or DSV or anExpeditors, they can put cargo on the ship of anycarrier, whereas in the case of Maersk, they cansell a logistics product primarily, send it aroundonly their own service network. That is a morelimited product. Maersk is also racing tohave net zero greenhouse gas emissions across itssupply chain by 2040.

Unlike its competitors,who are pivoting to liquefied natural gasvessels, Maersk is investing in methanolpowered ships. It plans to receive itsfirst vessel in 2024, which will emit 100tonnes of carbon dioxide less per day than atraditional diesel ship. Maersk will rely on thoseships and its overall ocean business, at leastfor now, as a barometer of not only the company'soverall health, but an.

Indicator of where theglobal economy is headed next. The global supply chain isone that is fraught with perennial set ofuncertainties that can present themselves at anygiven time, the ability to be agile in mitigatingthose uncertainties and the risks that come withit. You'll need someone who's able to help younavigate those ultimately treacherous waters of theglobal supply chain.

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