Whoever first came up with the advice to keep your friends close and enemies closer clearly knew nothing about container shipping.
AP Møller-Maersk, the world’s second-largest container shipping company, may be regretting the decision in 2015 to embrace its once smaller rival Mediterranean Shipping Company in a vessel-sharing alliance. Then, the logic was that by sharing capacity in tough times, the two could keep down costs and prices, while still offering a global network of routes.
But, while sheltering in the partnership, MSC has been able to grow so quickly that it has leapfrogged Maersk to become the world’s biggest container shipping line by capacity. In the process, it has learnt much about service and reliability from its rival. In November last year, MSC ousted Maersk as the world’s most reliable container shipping operator in terms of punctuality.
Now the two companies say they will not renew their partnership in 2025 and it will begin to unwind just as times are getting tough again. They insist that the decision to divorce was mutual. But it is clear that the alliance brought many more benefits to MSC — as does the timing of its demise.
MSC will no longer have to compromise on what day to sail, which terminal to use or which sailing to cancel. It has the scale to keep costs low and to offer a high-frequency service on many popular routes.
Maersk, on the other hand, will find its own strategy put to the test as never before. Since 2016, the group has been transforming itself from a container shipping giant into an end-to-end logistics provider, investing in air and land services to get cargo from factory to final destination. But it is not quite there yet, says Theo Notteboom, professor of port and maritime economics at Antwerp university. And it faces competitors more accustomed to dealing with the complexities of road, rail and air transport such as DHL, Kuhne & Nagle — and one day, perhaps, Amazon.
Moreover, Maersk’s strategy has alienated many of the freight forwarders that organise logistics for roughly half the world’s container trade. Many “feel it is payback time”, says Lars Jensen, head of consultancy Vespucci Maritime. “They will be more inclined to give cargo to anyone but Maersk and right now it’s a fight for volume.”
Maersk’s shipping capacity and route network are still vast. But over time this advantage could be eroded. MSC currently has 133 vessels on order against 29 for Maersk, according to industry data provider Alphaliner. In August 2016, Maersk’s capacity was some 400,000 20ft containers (TEU) ahead of MSC. Today the situations are reversed.
Maersk executives calmly fend off critics. Theirs is not a race on capacity, they argue, but one of higher value-added services. The provider that can deliver goods on time by whatever means — land, sea or air — is the one that will enable customers to cut inventories and so costs. Having scale in container vessels helped no one in the worst of the recent supply chain turmoil when ships queued to get into port and goods languished on docksides.
It is a bold bet. Yet Maersk has repeatedly shown a formidable ability to sense which way trade winds might blow. It was the first to gamble on ordering mega-container vessels, and it has also been in the lead on greening its fleet.
Also, regulators are becoming wary of these alliances, which group the world’s biggest carriers in strategic partnerships. The three biggest control 84 per cent of trade on the popular Asia-North America routes, according to Unctad.
Yet, with a weak global economy, right now may be the worst time to go it alone. Partnerships on individual routes are still possible, but more complicated. The real question is whether Maersk’s strategy of providing dedicated end-to-end services for individual customers is scalable fast enough to ride out the next cyclical downturn.
For MSC, too, there is risk in expanding so aggressively just as demand weakens.
But no one should presume that a muscled-up MSC will not play in Maersk’s market. In 2017, Soren Toft was a board director and chief operating officer at Maersk, charged with implementing the logistics strategy. But, in 2020, he became MSC’s chief executive, where he is launching a new air cargo arm. After 25 years at Maersk, there are few rivals as well equipped to understand where and how to challenge that company’s model in the future.