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Maersk overturns key strategies

Maersk overturns key strategies
The owner of the world's largest container shipping line - AP Moller-Maersk - is to abandon two key strategies that have shaped the sprawling Danish group as it seeks to recover from a period of patchy profitability.

Maersk overturns key strategies on size and vertical integration

The owner of the world's largest container shipping line - AP Moller-Maersk - is to abandon two key strategies that have shaped the sprawling Danish group as it seeks to recover from a period of patchy profitability.

Nils Smedegaard Andersen, who last November became the group's first externally appointed chief executive, told the Financial Times that Maersk would ease its policy of seeking to provide as many services for the core container shipping and oil and gas businesses from within the group.

Meanwhile, Maersk Line, which accounts for nearly half group turnover but is

loss-making, said the container carrier would scrap its previous strategy of ensuring it was twice the size of its largest competitor in key trade lanes. Pursuit of the objective led to two traumatic takeovers in the past decade.The strategic shifts show how rapidly family-controlled Maersk - which made pre-tax profits of $8bn on $51bn turnover last year - is changing under Mr Andersen, who became the 104-year-old group's fourth chief executive in November.

The company has said it should raise $800m through selling businesses this year, although it has insisted that two high-profile non-core businesses - its supermarket investments and a 20 per cent stake in Denmark's Danske Bank - will be kept.

Mr Andersen, formerly chief executive of Carlsberg, the brewer, took over after the unexpected departure last year of several key executives. Many observers attributed the departures to the unhappiness of Maersk McKinney-Moller, the 94-year-old son of the company's founder, with its performance.

Under the "vertical integration" policy cargo on Maersk Line ships would often go in containers manufactured by Maersk, on ships built by the group, through the group's ports, manoeuvred by the group's tugs and delivered by its trucks.

Mr Andersen said Maersk's ports business, APM Terminals, had been told to find more business from third parties. Maersk's logistics operations were to be a "neutral player" when choosing which shipping line to use, and would be encouraged to consider other container suppliers.

"We are moving away from this vertical integration in order to simplify our business and make sure every business we are involved in is competitive," Mr Andersen said.

Maersk charts new course

When Nils Andersen describes his plans for the sprawling group where he has been chief executive since November, one word he keeps repeating is "simplification".

But it does not take long looking at AP Moller-Maersk, one of Europe's biggest remaining conglomerates, to understand how complex an objective that is.

The group spent the first 89 years of its 104-year history under the control of just two chief executives: the Arnold Peter Moller of the company's name from 1904 to 1965 and Maersk McKinney-Moller, his son, from 1965 until 1993.

In line with the fashion of the time, the pair took the company into numerous business areas: the group once controlled several tropical plantations.

Besides its main pillars in container shipping and oil and gas, its activities still range from plastics manufacturing to retailing and a 20 per cent stake in Danske Bank, Denmark's biggest.

Mr Andersen is now faced with ensuring that all the parts of this extraordinary empire - whose turnover is close to that of Microsoft - meet the efficiency and return standards of a modern multinational. The will to change is unmistakable - Mr Andersen was brought in from outside the group precisely because he would have a fresh perspective.

However, the shadow of his predecessors is inescapable for Mr Andersen. While the company increasingly applies the same measures of shareholder return as any other multinational, Maersk McKinney-Moller, now 94 and the architect of much of the current structure, retains significant influence. As head of the partnership that has some important legal responsibilities over the company and founder of the family and charitable trusts that control the group, he is regularly consulted over key decisions.

Mr Andersen's first priority is to restore profitability at Maersk Line, the group's container carrier, whose fleet is nearly twice as large as that of Mediterranean Shipping Company, its biggest rival. Maersk Line has been struggling ever since it suffered disastrous information technology problems following its ?2.3bn ($3.6bn) takeover in 2005 of P&O Nedlloyd, once the world's number-three container line.

However, Mr Andersen says the Maersk Line problems should lead to changes across the whole group.

"We want to take this Maersk Line wake-up call and use it as an incentive to drive a simplification throughout the company," he says. "We want to be easier to do business with for our customers; we want to have simpler administrative and business procedures."

Part of the simplification is to steer group companies away from relying so heavily on other group members as suppliers and customers for their services. The practice - known as vertical integration - meant that the group tended to accumulate businesses in shipping-related or oil-related industries without necessarily providing the services more cost-effectively than potential alternative suppliers.

Mr Andersen says a highly vertically-integrated group runs the risk of becoming embroiled in cumbersome procedures and not being clear how each part is performing.

"This is a priority for us, to drive this simplification," he says. "That also means we get clear accountability and will be able to gauge all parts of the group on their performance."

In container shipping, meanwhile, the division that operates under the Maersk Line and Safmarine brands is scrapping the long-held objective of being twice as large as its next-largest competitor in key trade lanes.

The objective led Maersk to buy Sea-Land, the US container line, in 1999 as well as P&O Nedlloyd. Neither acquisition succeeded in that objective because both led to problems that made the line scale back.

Eivind Kolding, chief executive of Maersk Line, says size is no longer a priority.

"You could say it's a change of focus very much from growth to making sure our processes, our systems work and we have a scaleable philosophy for the future and we get profitability back," he says.

Yet Mr Andersen portrays the shift away from vertical integration as affecting mainly how the group's myriad businesses operate - there will be more emphasis on selling services outside Maersk or using non-Maersk suppliers. There is no suggestion that companies in the core oil or shipping businesses could be among sales of non-strategic assets from which the company expects to raise $800m this year.

Instead, it appears that while the thinking behind the group's activities has changed, real change in what the group owns remains off the agenda.

Mr Andersen plays down the significance of the planned disposals. "We have to do portfolio management once in a while," he says, and defies those who question the retention of the Danske Bank stake and Maersk's retail investments.

The company holds a 67.7 per cent stake in the company that owns Fotex and Netto supermarkets and a 37.7 per cent stake in two Danish department stores. Both are regularly held up as examples of assets that could readily find a more natural owner than Maersk.

Mr Andersen says: "We regard them as long-term investments, we manage them as independent businesses. So I think you can say we see them as part of the long-term structure."

Nils Andersen

Nils Smedegaard Andersen, 50, joined Maersk from Denmark's next-biggest company - Carlsberg, the brewer, which he transformed during the six years between his appointment as chief executive in 2001 and departure last year.

His main achievement was to turn the domestically-focused group into an international force, with operations in 20 different countries.

Before being appointed Maersk's chief executive, he had been an independent director for two years.

His appointment was part of an unprecedented management shake-up at Maersk. It was announced last June at the same time as the departures of two senior directors seen as closely linked to the container line's problems.

He had joined the brewer as a manager of its Tuborg brand in 1983 and went on to run its German and Spanish units.

He graduated from Aarhus University, in Denmark's second city, in 1982 with an economics degree and is married with three children.

Source: Financial Times


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