World's Largest Container Shipping Line Separates Off Energy and Logistics Businesses

DENMARK – WORLDWIDE – Danish maritime behemoth AP Møller Maersk, owner of the world’s largest container fleet, has announced one of the biggest changes to its operations in its 112 year history, with plans to split its businesses into two separate divisions: Transport & Logistics and Energy. AP Møller Maersk will focus on becoming an integrated transport and logistics company at its core, and the Energy related business will be spun off into its own division. Explaining the decision to split the group, Chairman of the Board, Michael Pram Rasmussen said:

“The industries in which we are operating are very different, and both face very different underlying fundamentals and competitive environments. Separating our transport and logistics businesses and our oil and oil related businesses into two independent divisions will enable both to focus on their respective markets. This will increase the strategic flexibility by enhancing synergies between businesses in Transport & Logistics, while ensuring the agility to pursue individual strategic solutions for the oil and oil related businesses.”

Transport & Logistics

Building on what it calls ‘the Group’s unique position within container transport and port operations, and significant position in supply chain management and freight forwarding’, Transport & Logistics will aim to leverage its leading position through new product offerings, digitalised services and individualised customer solutions.

The Transport & Logistics portfolio will consist of Maersk Line, APM Terminals, Damco, Svitzer and Maersk Container Industry, based on a one company structure with multiple brands. The mission of these businesses is to ‘enable and facilitate global supply chains and provide opportunities for customers to trade globally’.

By managing and operating the business activities in Transport & Logistics in a more integrated manner, Maersk hopes to enable profitable growth through ‘stronger collaboration and disciplined capital allocation’. The strategy of Transport & Logistics rests on three pillars to deliver long term profitable growth.

• Improving product offerings and customer experience by combining the capabilities of Maersk Line, APM Terminals and Damco with industry leading digital solutions.
• By operating as one entity, Transport & Logistics will aim to ‘harvest synergies and optimise operations to secure the industry’s most effective and reliable network’.
• Strong capital discipline and better utilisation of assets which the group says will be ensured. In a key insight the final clause states, ‘When making investments, acquisitions will be the preferred option’.

The strategies for the individual businesses will be adjusted accordingly:

• Maersk Line intends to grow market share organically and through acquisitions.
• APM Terminals will focus on cost and utilisation and increase its focus on operational excellence to enhance returns and deliver improved service to existing and new 3rd party customers.
• Damco and Maersk Line will collaborate to deliver new innovative customer solutions supported by significant investments into digital technology.
• Svitzer will pursue a growth strategy based on its market leading position and synergies with APM Terminals and Maersk Line will increasingly be explored.
• Maersk Container Industry will collaborate with Maersk Line on technology development and efficient production planning.

Energy

The radically different business model of the energy sector has prompted the Board of Directors to say it expects that the businesses that will form the Energy division: Maersk Oil, Maersk Drilling, Maersk Supply Services and Maersk Tankers, will require different solutions for future development including separation of entities individually or in combination from Maersk in the form of joint-ventures, mergers or listing. Depending on market development and structural opportunities, the objective is to find solutions for the oil and oil related businesses within 24 months.

Long term growth in energy demand and sharp reductions in investments in the global Exploration and Production (E&P) industry in recent years, leading to an expected reduction in oil supply in the coming years, provide opportunities to grow Maersk Oil based on the company’s key technical competencies. Maersk Oil will adjust its current strategy to focus its portfolio in fewer geographies to gain scale in basins, particularly in the North Sea, where it can leverage its strong capabilities within subsurface modelling, well technology and efficient operations. Maersk Oil will aim to strengthen its portfolio through acquisitions or mergers.

Further, Maersk Oil will mature existing key development projects, while keeping exploration activities and expenses at a low level. While the strategic focus will be reflected in a disciplined capital allocation, investments in strategic projects already sanctioned or under development will continue as planned.

Maersk Drilling, Maersk Supply Services, and Maersk Tankers will continue to optimise their market position and operation with the existing fleet and order book. Additional investments in the Group’s offshore service businesses and Maersk Tankers will be limited.

Management Structure

Maersk launched a strategic review on June 23, following the departure of Nils Andersen as Group CEO. The Board of Directors had tasked the management of Maersk to perform a review focusing on the strategic and structural options for the Maersk Group with the objective of generating growth, increasing agilities and synergies and unlocking and maximising shareholder value with the long-term view. Along with these structural changes, Maersk announced the new management structure.

• Søren Skou will continue as Group CEO of Maersk and CEO of the Transport & Logistics division,
• Claus V. Hemmingsen will be appointed Group Vice CEO of Maersk effective October 1, and CEO for the Energy division,
• Jakob Stausholm will be appointed Group CFO of Maersk as of December 1. On the same date, Group CFO Trond Westlie will step down as member of the registered management and leave the Group,
• Jakob Thomasen will step down as member of the registered management and CEO of Maersk Oil effective on October 1 and will leave the Group on November 1.
• Kim Fejfer will step down as member of the registered management effective on October 1 and as CEO of APM Terminals effective on November 1 when he will also leave the Group.

So what can we make of these moves that the biggest player in the container market is now making? Prior to the recent demise of container line Hanjin the South Korean group was forced to sell off aspects of its energy business and it seems a sensible move for Maersk to address these two radically different markets for what they are. The core shipping business and the energy sector both have had to ride out difficult times, as with any conglomerate when most parts are doing well it is happy days for shareholders. If some thrive when others suffer the company usually rides out the storm.

If however, there are slim pickings for all the chosen areas the company operates in this can produce insurmountable problems and by separating out the two core areas of operation, and managing them under different strategies as is required by their markets, it remains to be seen if they will prove more successful individually than they have as one unit under the AP Møller Maersk banner.