By Erik Eisenberg, journalist at the Danish daily business newspaper Børsen. The following is a translation of an article that originally appeared in Børsen on 12 May 2019.
The current transformation of Maersk from conglomerate to pure transport group is often described as historic. However, the company has done it before – transforming itself in ways which were more far-reaching, according to Maersk’s own historian.
The word ‘historic’ is currently being used repeatedly about A.P. Moller - Maersk – and by Maersk’s own senior executives – when talking about the transformation which has seen the large, blue group changing from a diverse conglomerate into a dedicated transport group.
When, at the general meeting, Chairman of the Board Jim Hagemann Snabe announced the last of the transactions which have moved assets worth DKK 100 billion – with Maersk Oil having been divested to the French company Total and Maersk Drilling having been demerged and listed separately – he used the word repeatedly.
Among other things to emphasise that the advantages Maersk Group had enjoyed historically through its involvement in shipping, oil and gas, the tanker market, supermarkets and the banking sector, had vanished and become a risk.
“In other words, it was high time to review the group’s strategic direction, and find a way to reinvent A.P. Moller - Maersk,” said Jim Hagemann Snabe.
But just how historic is this transformation of A.P. Moller - Maersk? How has one of Denmark’s oldest, largest and most global groups managed to reinvent itself over the years?
What is more natural than to ask Maersk’s own in-house historian?
Because they actually have one at Esplanaden. His name is Henning Morgen, and as ‘Group Historian’, he is responsible for documenting, collecting and communicating all the Maersk Group’s historical material and information about itself.
And according to him, Maersk has done it all before – reinvented itself, drawn up new and ambitious strategies and made decisions that radically changed the company and created new growth.
One of the most radical of these transformations took place in the early 1970s.
Within the space of just a few years, the A.P. Moller Group launched several big and bold initiatives that laid the foundation for the conglomerate that went on to enjoy success for the next 40 years.
“In Denmark, the period we’re talking about is historically remembered as a time of crisis, when everyone thought the country was heading for the abyss. However, for the A.P. Moller Group, it was one of the company’s most important and successful periods. It was back then the two pillars were established upon which Maersk stood firmly for the next 40 years,” explains Henning Morgen.
The two pillars were container shipping on the one hand – a field in which Maersk is now world-leading and dedicating itself to becoming ‘the global leader of container logistics’ – and oil-related activities on the other, which started with the North Sea, and continued with international activities in Qatar, driving massive growth in the company’s energy division.
“Up until the early 1970s, the group’s main areas of activity had actually been tanker shipping, liner shipping the old-fashioned way without containers, steel ship building and industrial companies. The overall strategy was to run profitable enterprises “with a positive impact on society”. Shipping crude oil was so lucrative that the group was flush with money, which it was keen to invest in new business opportunities. And it was good at seizing any new opportunities that presented themselves,” says Henning Morgen.
Look at containers
It was during this period that the group acquired a significant stake in the supermarket chain Dansk Supermarked. Herman Salling, who had founded Dansk Supermarked, lacked funding for his expansion plans, and A.P. Møller was keen to keep the project in Danish hands.
Also, the investments in the car brake manufacturer Roulunds Fabriker were made out of opportunism and a desire to have a stake in a Danish-owned and profitable enterprise.
However, the first oil crisis knocked the bottom out of the tanker market. Something was happening which would radically change Maersk: Containers.
“The container was an American invention from the mid-1950s. The first international shipments using containers out of the USA took place in the mid-1960s. But Maersk played no role in this market. The shipping market back then regarded Maersk as ‘an insignificant player’ on the key markets, which were dominated by the old colonial powers,” explains Henning Morgen.
As head of the family business, Mærsk Mc-Kinney Møller was, on the cusp of the 1970s, in his prime. A mature man who knew the company inside out. His father A.P. Møller, who in many ways was a dominant force, had passed away five years previously, and the younger Mr Møller now had the freedom, the determination, the courage and the mental capacity to accomplish something big.
“Mærsk Mc-Kinney Møller launched many new initiatives, for example with Maersk Air and Maersk Data. He sat on the Board of IBM, and was greatly inspired by American leadership and management systems in particular. He was ambitious and willing to take risks,” says Henning Morgen.
The A.P. Moller Group back then was already a listed company, but there were no requirements for interim reports, transparency and a constant flow of results.
A long time was spent – several years in fact – compiling all the figures which would then inform the decision to focus on container shipping.
“The decision had been made and an order had been placed with a shipyard in West Germany for a number of ships which could each carry 1,200 20-foot containers at a time – but then Mr Møller changed his mind. The drawings had long since been sent off, but he telephoned the shipyard with instructions to have the ships extended to accommodate 1,600 containers instead. It was a decision based purely on gut feeling,” says Henning Morgen.
From 11 to 120 countries
It marked the beginning of a period of unparalleled growth globally.
In 1975, the Maersk Group had offices in 11 countries. By 2000, the figure had grown to 120.
In particular, the fall of the Berlin Wall in about 1990 further accelerated the process, and Maersk posted numerous Danish and foreign employees abroad to countries which had previously been out of bounds for Western companies.
This was also when the oil business took off.
At almost exactly the same time as the ambitious container initiative was being launched, the first oil was being pumped up from the North Sea.
And even though shipping has always been the dominant business area, the national North Sea oil adventure added a whole new dimension to the Maersk story: The myth of the A.P. Moller Group as a powerful concern.
Iconification of Maersk
“An iconification of Maersk in Denmark took place, and was really rather special. While the group’s spectacular international growth in container shipping received far less attention, the oil business created a completely different impression in society. The fact that Mærsk Mc-Kinney Møller attended meetings with the prime minister – even though he would rather have been spared the attention – had a big bearing on how the company was perceived in Denmark,” says Henning Morgen.
In fact, it was actually not until the late 1980s that Maersk started to make money from oil.
And it was not until 1994, when Maersk Oil was invited into Qatar, that the oil activities experienced a shift in gear and started attracting significant investments. The investments and the experience which the company acquired through working the hard limestone in the North Sea strengthened Maersk’s position.
“In 2000-2016, oil and gas contributed most to the bottom line, but there was a subtext to the story. For most of the company’s history from 1970 onwards, container shipping and activities closer to home generated most of the earnings,” says Henning Morgen.
The fact that Mærsk Mc-Kinney Møller attended meetings with the prime minister – even though he would rather have been spared the attention – had a bearing on how the company was perceived in Denmark
A week to consider the deal
There are lots of other historical milestones:
Such as when A.P. Moller took over EAC’s container division in the 1990s – after just a week in which to consider the deal – and subsequently the American firm Sealand, the company whose founder had also invested the container. Sealand had a portfolio of port terminals, which then became the platform for creating the port division APM Terminals.
Or when the A.P. Moller Group – until that point shrouded in secrecy and known for its impenetrable corporate structure of partnerships, limited companies and six-monthly financial statements without any figures other than the date and year – suddenly started in the noughties to transform itself into a conventional group with a parent company, subsidiaries, and precise information on how big a stake it actually had in, for example, Danske Bank.
And then there were the historical oddities. Many people think that today’s shareholder activism with critical contributions at annual general meetings combined with demands for more and better dividends for investors are a new thing. According to Henning Morgen that is not the case at all:
“You can just sell your shares.”
“At an annual general meeting in the 1950s, A.P. Møller was criticised from the floor for paying out too small a dividend. The response was that if you took that view, you could just sell your shares – with the postscript: ‘We’d be happy to buy them’,” says Henning Morgen.
Historically, what distinguishes the period of massive growth since the 1970s and the new journey which today’s Maersk is about to embark on? There are two things, according to the historian: The first is a question of size.
“Today, our chairman says loud and clear at the annual general meeting that the energy companies had to be divested because it was difficult to see how they could become some of the biggest in their respective markets. Only by being one of the largest and market-leading can we guarantee profitable growth.”
“However, this requirement did not apply at the beginning of the 1970s, when Mærsk Mc-Kinney Møller decided to get into container shipping. Back then, Maersk was an insignificant player. The change in strategy was necessary to meet customer requirements. And this is also the reason behind today’s change of strategy. So there is both a clear parallel – but also an important difference,” says Henning Morgen.
The other difference is about time – or perhaps it is actually about patience. Mærsk Mc-Kinney Møller and his closest lieutenants spent years analysing the container market in every detail before making a move. Over the next three decades, their strategy was revised and adjusted. But basically it was the same – and there was a world out there to conquer, and enough patience as long as growth was maintained.
The next strategy-cycle – the one that Nils Smedegaard headed and which focused on four strategic business units – Maersk Line, Maersk Oil, Maersk Drilling and APM Terminals that opened up huge investment opportunities and had to be in the top 25 per cent within their respective industries – lasted just nine years before it had to be adapted. The world had changed radically. The oil price collapsed, revenue fell, and, in three of the five operating years from 2012 to 2016, Maersk invested more money than its operations generated.
“The patience of owners and the world at large with a strategy is simply less, while requirements for communication and transparency have grown. It is inconceivable that you could spend years thinking and analysing in the same way that Mr Møller did in the 1970s. Even though the changes back then were of the same magnitude as those we are seeing today, it was a completely different era,” says Henning Morgen in conclusion.