Facing the facts

Maersk Line started sailings on the Panama Line from ports on the US East Coast via the Panama Canal and Los Angeles to the Far East in 1928. However, it did not establish itself as a major player in the Pacific until after the Second World War. In its 1966 report, the Stanford Research Institute stated that regional trades were expected to change over the coming years and that Maersk Line was well positioned to meet this development. The numerous inter-Asia routes that had been in operation since the 1950s would prosper from the growing economies in the region, notably Taiwan, South Korea, Hong Kong and Singapore. In its 1969 report on the potential of the A.P. Moller Group, McKinsey outlined the position of the competing liner operators in the Pacific trade – Sea-Land, APL, NYK and Mitsui, among others. They were either considering containerisation or already preparing for the delivery of fully cellular container ships. Maersk Line lagged significantly behind in that specific trade.

In fact, in the autumn of 1968 Mærsk Mc-Kinney Møller and Maersk Line had already initiated internal evaluations and discussions with Kawasaki Kisen Kaisha, Maersk Line’s partner on the newly established Europe–Asia trade, to determine how to address the container challenge. The two partners were very much influenced by messages coming out of the Far Eastern Freight Conference (FEFC), where other members – those building container ships at shipyards in Europe and Asia – discussed rates and conditions for the transport of containers. The predictions made in 1966 by McKinsey were now being talked about across the table and were very much a fact of life. Maersk Line knew it had to respond.

Getting to Year 2000

As so often, Containerisation International provided a commentary on the sector in its 1997 yearbook. Jane Boyes wrote:

In the same article, she went on to say that

The A.P. Moller – Maersk Group made its first loss ever in 2009, after 104 years in business. Maersk Line’s loss of $2.1 billion was highly influential in the group’s overall loss of $1 billion, highlighting the close connection between the macroeconomic state of the world and shipping – in this case container shipping.

More formally, the A.P. Moller – Maersk Group’s Annual Report stated that:

Maersk Line’s loss reflected ‘the tough market conditions with falling freight rates and volumes’. The immediate effect of the significantly changed supply and demand situation was a dramatic decline in turnover of some $8 billion from 2008 to 2009.

Maersk Line’s turnover as a business had grown over 600 per cent in the ten years between 1997 and 2007, to about $26 billion. A further $2 billion would be added in 2008. Maersk Line was now a massive business and turning its result around to consistent profitability was not going to be a short-term activity.

A dynamic but challenging industry

For many, 2008 was a good year – even for some in the shipping industry, with growth in both their businesses and profits. But 2008 was a very tough year for Maersk Line.

Three years earlier, Maersk Line had started the acquisition of a major competitor, P&O NedLloyd. Following approval by the authorities in February 2006, integration proceeded quickly and everything was to be in place within six months. Enormous efforts were made by both organisations to merge the numerous offices around the world – Maersk Line alone had 325 offices in 125 countries.

The newly merged organisation had grown to over 30,000 people from the 22,000 originally in Maersk Line. The fleet had expanded similarly, from about 350 container ships to a fleet of over 600, both owned and chartered. Structuring the fleet network, already a challenging task, now became very complex.

Putting the economic development into perspective

In 1950, when one of the authors travelled as a young child by a British Overseas Aircraft Corporation flight (BOAC, the precursor to today’s British Airways) from England to Jakarta in Indonesia, it took about five days to get there and was seen as a rare privilege. Flying in a four-engined, piston-driven Lockheed Constellation, known familiarly as the ‘flying banana’ because of its shape, the flights took place mainly during daylight hours, as little radar and few navigational aids existed at the time. Today, such travel is commonplace. Bali, in Indonesia, is a major tourist holiday resort for people from all over the world and flights to New Zealand from Europe, about as far as one can travel, take only 24 hours.

Maersk Line had been serving Indonesia regularly since 1929, and as part of expanding the liner network in Southeast Asia in the 1950s, Harrisons and Crossfield were appointed as agents in 1953. The liner services of the early 1950s, like the flights, were a very different story from those of 2013. Then, Maersk Line’s ships, scheduled to arrive on a certain day rather than at a certain hour, berthed at quays in or near the city centre near the all-important infrastructure of roads and railways, rather than at terminals located far away, as today. The ships often stayed in port for days rather than hours, allowing time for gangs of longshoremen to unload or load the cargo, which consisted of many small boxes, bales and drums, rather than today’s many large containers. It was a different world and, just as in the skies, the revolution in sea transport has changed the way we look at and live in a globalised world.

The first decade of the twenty-first century was turbulent for many, in many different parts of the world and in many different ways. In 2005 the US housing market peaked and the asset bubble that had financed so much of the power of the consumer to keep global markets buoyant started to collapse. On a more positive note, that year the International Monetary Fund approved 100 per cent debt relief for 19 countries under the Multilateral Debt Relief Initiative. The amount involved was relatively small, some $3.3 billion, but a positive step had been taken.

That same year, 2005, the Multi-Fibre Agreement, which had imposed quantitative restrictions on textile movements, particularly from Asia and the less developed areas of the world, came to an end after a long phase-out period. The China effect was beginning to be significant; China’s share of global textile exports to the US and Europe, 17 per cent in 2005, would rise to 40 per cent by 2010.

The backdrop to our story, and the first point of reference, is Svendborg, one of the main shipping towns in Denmark, at the end of the nineteenth and beginning of the twentieth centuries.

Many Maersk people are familiar with the phrase ‘It all began in 1904’, which used to precede the presentation of the company’s activities in glossy brochures produced in the 1980s and 1990s. Even though the A.P. Moller Group was a much smaller company at the time, within the small country of Denmark it was a large corporation. The ‘all’ signified the many activities of the group, contrasted with its context within Denmark and within a world of business that was not yet global in the way we understand it today.

However, even in 1904, the perspective of the key players in the company and Maersk’s business activities was international. Maersk’s people had gained international experience from the relevant markets at the time and used that experience to establish and gradually expand the business.

Close, but not quite

At the beginning of 1991 a fax had been received by Maersk Line’s management from the Danish East Asiatic Company (EAC), announcing that from 1 January 1992 it would be operating a joint weekly service between Asia and Europe with Ben Line of Edinburgh, under the name EAC-Ben Line. There would be seven ships on the service, four provided by EAC and three by Ben Line.

On 1 May 1992 Hans Henrik Sørensen reviewed Maersk Line’s needs for capacity up to the year 2000 and increased the need for chartered ships from five to nine to cover the period 1997–2000. His conclusion was that it would be ‘unrealistic to charter these vessels, therefore we have to investigate possible purchase options’. Maersk Line had in the past looked into several acquisition possibilities but none of these had materialised. Now, ‘an acquisition possibility that would be in conformity with our strategy and where the present owners might be willing to sell their container vessels would be: EAC and Ben’.

1966: a critical year

In 1966 Mærsk Mc-Kinney Møller and the Maersk Line management embarked on the journey towards containerisation. Maersk Line had been in the deep-sea liner business for nearly 40 years and was well established in the Pacific, considered one of the larger trades together with the other east–west trades of the Atlantic Ocean and Europe–Asia, as well as several regional trades, primarily in Southeast Asia. However, their competitors had already made the crucial decision to introduce new services, transporting standardised containers. Maersk Line decided in favour of an alternative to the standard container, and it would take nearly a decade for the company to launch its first fully containerised service. On the troublesome way, Mærsk Mc-Kinney Møller and the Maersk organisation would mature and grow into a modern and even more internationally oriented business.

In the mid 1960s, the world was changing rapidly: the global population had increased by one-third in less than two decades and now numbered around 3.3 billion. Trades in Maersk Line’s main markets in North America and Asia increased dramatically in the same period. The United States’ international trade rose from $19.4 billion to $50.3 billion and Japan’s from $1.7 billion to $15.8 billion. Only a limited number of people in and around the shipping industry had the vision to see the opportunities offered by the standard container for facilitating and expanding this trade. The industry would go through significant changes, and indeed itself become a major driver for changing the world as commodities were moved from break-bulk into containers.

Two documents from the end of 1989 provide an insight into the thinking of Maersk Line’s management at the time. The first was a McKinsey report entitled ‘Challenges in the 1990s’. Flemming Jacobs summarised the report in a note to Mærsk Mc-Kinney Møller and the A.P. Moller Group leadership: to win in the coming years ‘superior analytical skills would be essential; strong operational expertise would represent a necessary base platform; wide strategic flexibility would be needed; financial freedom would be required, with aggressiveness and a strong bias for action’.

The second was a short memo from Jacobs to Mærsk Mc-Kinney Møller and Ib Kruse. In it, he proposed the creation of a ‘vision’ for Maersk Line to build on the existing product differentiation and to guide the global organisation over the next few years. Jacobs cited intense competition from the Korean carriers as well as the Chinese COSCO, the reduced effectiveness of the conferences and the fact that none of the carriers was in a position to be a price leader.