Becoming the global integrator of container logistics

We have made substantial progress in combining the container shipping, ports  and logistics businesses.

Søren Skou
Søren Skou

It has been an unusual and eventful year for A.P. Moller - Maersk. 

We progressed in the remaking of the company, separating out the oil and oil-related businesses and transforming our container shipping, ports and logistics businesses. Business results were improved from a low 2016 base, and we did a total of USD 14 billion worth of M&A transactions. We overcame an aggressive cyber-attack which led to a difficult third quarter and consequently financial results were negatively impacted.

New and strong ownership was found for Maersk Oil and Maersk Tankers. We agreed to sell Maersk Oil to oil and gas major Total S.A. and have sold Maersk Tankers to A.P. Moller Holding. In a separate step, we sold the remaining 19% stake in Dansk Supermarked Group to the Salling Companies, which allows us to further focus on the core business.

We successfully acquired Hamburg Süd and the integration is progressing well. With this acquisition, one in five of all containers in the world and one in four of all reefer containers are moved by Maersk Line.

We continued to progress on the digital transformation of our core business, moving customer transactions online and digitising the way we operate our assets. Our e-pay solutions have launched and are ramping up successfully. We launched Twill, a digital forwarder, primarily in Asia-Europe trade lanes and customers are responding well in adapting to new self-service solutions.

Our vision of becoming the global integrator of container logistics, connecting and simplifying our customers’ supply chains, is taking shape.

Financially, we reported revenue growth of USD 3.7 billion to USD 30.9 billion and an underlying profit of USD 356 million in 2017. The underlying profit in the transport and logistics business of USD 1.0 billion was in line with latest guidance.

There were strong underlying market conditions through most of the year, but the result was negatively impacted by the cyber-attack, weaker rates and increasing bunker costs, especially in the fourth quarter.

Enhanced customer offering

Hamburg Süd is an outstanding brand with high-quality products and by combining our two businesses we will reinforce the global positions of both companies and enhance our service offerings to customers.

It supports Maersk Line’s growth strategy and is a unique opportunity to realise commercial opportunities as well as sizable operational synergies between the two companies. In the early stages of our integration journey, there has been a positive and welcoming attitude on both sides and willingness to work and learn together.

Maersk Line and Hamburg Süd will offer customers better market coverage, attractive direct services and benefits via a combined global network. The cost synergies will primarily be derived from integrating and optimising the networks as well as standardising procurement. Together, Maersk Line and Hamburg Süd will have a total container capacity of more than 4 million TEU and a global capacity market share of approximately 19%.

Delivering on the vision

We continue to believe that the liner industry will consolidate further, which we will benefit from, and that there is a low need for capital expenditure as future ordering is expected to stay low for the coming years.

The transport and logistics market is big and growing. Estimated revenue in container shipping is USD 150 billion with expected growth in line with GDP, and for contract logistics USD 245 billion with growth above GDP. Traditional freight forwarding may be growing below global GDP yet has revenue of USD 180 billion, while supply chain management is smaller at USD 40-50 billion but growing faster.

We are in a strong position, with a competitive advantage from combining asset operations with capabilities to deliver end-to-end solutions that tap into markets covering the whole journey from producer to consumer.

Our vision to become the global integrator of container logistics implies three essential building blocks. The first is to provide those simple end-to-end solutions to meet our customers’ complex supply chain needs, and as part of this we are planning several value-added services online to complement the physical offering, including inland services and custom house brokerage.

Poster image
A.P. Moller - Maersk CEO Søren Skou on the Annual Report 2017. 04:21

With the right people in place, we are delivering on the strategy and creating the A.P. Moller - Maersk of the future.

Secondly, we will elevate the customer experience through digital innovation, such as Remote Container Management (RCM), which allows customers to monitor conditions inside our reefer containers from when their goods are locked inside right up to delivery at the final destination. Damco’s new digital freight forwarder, Twill, is another exciting development in the digital field, allowing customers to book the whole freight forwarding package online or via an app.

The third part is to extend the industry’s most effective and efficient delivery network to every market in the world, and we will achieve this both organically and through acquisitions. A larger network is an enabler for our growth ambition as it enhances customer offerings, and furthermore helps secure cost leadership. As part of this third element, we will restore Maersk Line’s reliability to top quartile and optimise the APM Terminals hub ports.

One integrated company

Integration and transformation of our container, port and logistics businesses is well under way. We are making progress towards operating as one integrated company and delivering the expected synergies, that are estimated to create a ROIC improvement of two percentage points by the end of 2019, or around USD 600 million.

Examples of this include Maersk Line’s volume growth at APM Terminals; Maersk Line, APM Terminals and Damco working together to provide more complete solutions for customers; and the stronger results at Maersk Container Industry. Svitzer is further developing its cooperation with the other brands to harvest synergies through improved operational optimisation, collaboration and scaling across ports and regions.

We are targeting profitable growth and accordingly, we have established Growth, a unit that examines business ideas and pursues those which have the potential to create new world-class businesses.

The focus in 2018 will be on improving the customer experience in Maersk Line; expanding our presence outside ocean transport and building towards offering end-to-end solutions online; successfully integrating Hamburg Süd; improving the financial performance of APM Terminals; and reducing the unit cost, based on fixed bunker price, in Maersk Line.

It will also be a priority to strengthen the IT backbone and increase cyber resilience. In June, A.P. Moller - Maersk was hit by a cyber-attack that was one of the most aggressive that we and our global partners have ever experienced. The effect on profitability was USD 250-300 million, with the vast majority of the impact related to Maersk Line in Q3. We are putting in place different and further protective measures, and are continuing to review and strengthen systems to protect against future attacks.

Safety first

There are many changes in the company but there is nothing different in our approach to safety and our employees. Work remains to be done in this vitally important area.

Sadly and to our deep regret, in 2017 we have suffered seven fatalities while working at A.P. Moller - Maersk-owned facilities. It is deeply unsettling to me personally that any colleague should lose their life while working for the company. It is deeply unsatisfactory and we must work ever harder to ensure this number is reduced to zero.

Thank you

A year of such change can be unsettlingfor many colleagues, yet it has also been hugely exciting. My deepest gratitude goes to all our employees for their dedication and contribution to the company’s performance and transformation in 2017.

With the right people in place, we are delivering on the strategy and creating the A.P. Moller - Maersk of the future. Our company, through its focus on new technologies, will transform the transport and logistics industry for the benefit of customers, world trade and our shareholders.