Maersk's goal has always been very clear, not quantity or market share, but profit. Quantity and market share can only be used as a means to achieve target profitability: for better operational and business performance.
having said that, the development of quantity and share is obviously under pressure. According to relevant data, in the first half of 2022, due to strong demand leading to high freight rates, the shipping business achieved the strongest performance ever, with revenue growth of 33%. The interesting aspect here is not the extremely high profits in 2021 and 2022-but the reversal of the return to the normal market, which is interesting.
It is worth noting that since 2021 shipping prices hit historical highs, global shipping giants such as Maersk, Dafei and COSCO have strengthened their business share of long-term contracts in order to keep shipping prices high, a strategy that safeguarded Maersk's profits last year.
Of course, with the outbreak of the pandemic, sales have dropped sharply, but otherwise, it is clear that sales in 2021 are steadily declining and the decline in 2022 is accelerating. From last year's earnings before interest and tax of $30.9 billion to this year's expected earnings before interest and tax of $20-5 billion, Maersk expects profits to plummet by more than 90% this year, reflecting its extreme pessimism about the market this year! Before the results were announced, Maersk had repeatedly expected the global economy to show weakness. In August last year, the company said that due to the surge in freight charges caused by global supply chain congestion, the company's half-year profits have soared. It is expected that the global container demand will decline in 2022, the consumption of durable goods such as flat-panel televisions and furniture will fall into a "stagnation", and the possibility of warehouse accumulation will increase.
if the fourth quarter of 4 years is compared with the peak performance in 2022, Maersk has given up the annualized amount equivalent to 20.19 million FEU. Another way to look at it is to look at the loss of market share compared to five years ago. In this case, they gave up the annual 20000 of FEU. Maersk predicts that earnings in 2023 will be significantly reduced by 70% compared to 2022. The company wants to grow, and cost reduction measures are inevitable.
theoretically, this does not negate Maersk's view that focusing on improving profitability is more beneficial than pure quantity.
problem is that container transportation is still an industry with great economies of scale. The two most important factors are related to the size of the vessel and the size of the network.
problem lies in the size of the network. A network with many weekly services is one that can provide more direct port-to-port solutions. This resulted in significant operational cost savings in terms of transshipment and feeder costs. It usually provides customers with faster direct service transportation time. It gives the network more flexibility in adjusting capacity when demand is temporarily or seasonally weak. More limited networks can create flexibility through the creative use of transshipment hubs, but this comes at a cost.
Therefore, reducing capacity will put pressure on the network scale advantage. This leads to a choice between further reducing the network to keep the vessels filled, creating a negative spiral, or increasing cooperative vessels or slot sharing agreements with other carriers. This collaboration can counteract the effects of missing volumes, but the result is less autonomy and control over the entire network. This is the core of Maersk's integrator strategy: the reduction of autonomy and control over the entire network hinders their ability to control the entire end-to-end logistics chain in the eyes of customers, thereby reducing them compared with traditional logistics operators. Competitive advantage.
So, back to the starting point: Maersk's point is clear that they are interested in profitability, not in scaling up for the sake of scale itself. However, the continued downsizing will eventually challenge the profitability aspirations of some competitors in markets that are increasing their economies of scale.
Forwardernet.com