Millions in Transport & Logistics integration
Published on 14 September 2017
Showing the way forward: Jan Esbech (left), and Bo Lindberg Andersen lead the efforts to reap millions from a closer collaboration between Maersk Line and APM Terminals. Photo: Christina Bode
APM Terminals in Salalah, Oman is seeing a lot more Maersk Line containers than it did only a year ago. The number of moves is up by 80% after Maersk Line transferred volumes from nearby terminals.
Both parties are gaining financially, adding a combined USD 5 million on the bottom line every year, and the case works well to illustrate how businesses across Maersk's Transport & Logistics division can find synergies and money by working together.
"The potential to make deals like this has always been there," says Jan Esbech, Head of Global Marine & Inland at Maersk Line and the co-head of the 'collaboration team' that has been set up between Maersk Line and APM Terminals.
"We needed the willingness to compromise, which we have now where we are working together to make as much of Maersk Line's volumes as we possibly can," he adds.
Bo Lindberg Andersen, Global Client Director at APM Terminals and Esbech's counterpart in the collaboration team, explains that the Transport & Logistics division has essentially seen Maersk Line and APM Terminals turn their relationship upside-down:
"We used to be two very individual companies, a seller and a buyer, which gave us two completely different sets of incentives and a lot of internal competition," he says. "With a dedicated collaboration team and combined targets, we've been able to set a new tone and help push a new way of doing things."
Change takes time
Last year, when A.P. Moller - Maersk announced its intention to become an integrated container shipping, logistics and ports company, it broke with a long-standing principle of operating each business as a stand-alone company. By integrating the businesses and working together, synergies like the case in Salalah and others across the division, are expected to improve the division's return on invested capital by two percentage points over a period of three years starting in 2017.
"Last year's financial result was unsatisfactory, and we are in a recovery phase. The result from the first quarter shows that we are on the right track. The same goes for the second quarter where we are beginning to see some cost-synergies and collaboration wins start to kick in," says Jakob Stausholm, Chief Financial, Strategy & Transformation Officer at A.P. Moller - Maersk.
"It takes time to fundamentally change a company of this size. There's a lot more to come," says Jakob Stausholm, Chief Financial, Strategy & Transformation Officer at A.P. Moller - Maersk. Photo: Christina Bode
"We can see Maersk Line and APM Terminals working together to drive more volume to terminals, and Maersk Container Industry’s turnaround thanks to better coordination with Maersk Line is also a good story," he adds.
He points to the fact that it takes longer to see the result of revenue growth initiatives – although increased volumes and better freight rates did see Maersk increase revenue year-on-year in the first quarter for the first time since 2014.
"It's still early days, and we shouldn't be discouraged by the fact that it takes time to fundamentally change a company of this size. There's a lot more to come," Stausholm says, as he also points to the acquisition of Hamborg Süd, which will help add new volumes to APM Terminals as well as the potential in digitisation across the Transport & Logistics division:
"We'll be able to offer new and unique customer experiences, linking different services across the division, as we digitise our assets and use the data in entirely new products," he says.
A natural, next step
A key part of the collaborative efforts is to optimise value across the Transport & Logistics division instead of the individual brands, essentially driving a new mind-set and pursuing deals where it's okay for one business to lose one dollar if another makes ten. Being the division's two largest brands, both in terms of invested capital and revenue, the close collaboration between Maersk Line and APM Terminals is essential to the success.
This is a new approach compared to the thinking that established APM Terminals as an independent company in 2001, moving its headquarters to The Hague in the Netherlands in 2004. Then, Maersk Line was by far the main customer and annual throughput had just exceed 20 million TEU. Today, Maersk Line accounts for less than half of APM Terminals' activity, which in 2016 had reached 37.7 million TEU.
"When APM Terminals was separated from Maersk Line, it was the right thing to do because it was part of the process for both companies, focusing on the core activity, and it allowed both to become a lot sharper. But at some point, instead of optimising, you start to sub-optimise. I think that is the point we had reached, and that's why it makes so much sense to work more closely together again," says Bo Lindberg Andersen of APM Terminals.
Last year's financial result was unsatisfactory, and we are in a recovery phase. The result from the first quarter shows that we are on the right path. The same goes for the second quarter where we are beginning to see some cost-synergies and collaboration wins start to kick in.Jakob Stausholm, Chief Financial, Strategy & Transformation Officer at A.P. Moller - Maersk.
Jan Esbech agrees, explaining why a deal like the one in Salalah was not struck before the integration - even if it represented a win for both parties.
"It all depends on the mindset. If two parties enter a negotiation and push in opposite directions to maximise profit individually, the deal space gets very narrow. However, going into the discussion with a crystal clear instruction and mandate to optimise value for Transport & Logistics, then it's much more important to get a total extra value of USD 5 million by moving more volume at a slightly higher rate than you'd ideally have wanted."
Staying strong individually
Esbech also dismisses any risk of complacency, i.e. seeing APM Terminals take Maersk Line volumes for granted:
"There'll always be a drive to get the lowest possible cost at Maersk Line and we know what the alternatives are," he says. "Besides, if we pay too much for our network, absorbing higher cost, we'll be worse off against the competition. In short, it will become really difficult to create value for Transport & Logistics if Maersk Line's network suffers."
The same goes for APM Terminals, which is unable to fill its terminals without the volumes that come from carriers other than Maersk Line.
"We need to be competitive and have a value proposition that sees customers choosing our terminals," says Bo Lindberg Andersen. "That matters more than a closer relationship with Maersk Line, which is of course conducted in a compliant way. We cannot afford to be accused of unfairly treating Maersk Line better than any of our other customers. I wouldn't say it's a challenge. It's just a given."
Even with everything done by the book, concerns that the close collaboration between Maersk Line and APM Terminals would alienate other customers at APM Terminals have been voiced. Jakob Stausholm, however, is not worried about a potential perception issue.
"We're not the only company that owns vessels and terminals, so this is nothing new. We believe that the customers at terminals will look at the total offering and price and not too many other things. In today's stiff competition you can't really afford to do anything else," says A.P. Moller - Maersk's Chief Financial, Strategy & Transformation Officer.
Currently, the Collaboration Team has six value streams and 25 individual projects, including Hub Excellence, local synergy plans and inland initiatives. A project is added to the list when additional Transport & Logistics value is identified, and while the responsibility is pushed locally, where the impact is felt, Jan Esbech is delighted to be part of the process, and the collaborative approach.
"Maybe you have to be in it all the time to see it, but I think one shouldn't underestimate that it's a lot more fun to work together with the colleagues at APM Terminals than it was in the past. It's not a competition any more, we actually like working together and I think that's a really good enabler of good financial results that we have a common task to make money for the company. It makes a big difference in meetings and in creativity. I can tell you that for sure.”