World’s largest container line reorganizes. Will its multibrand strategy survive?
When A.P. Moller-Maersk, the world’s largest
container-line owner, announces layoffs in the middle of a pandemic, the
immediate reaction is: They’re cutting staff and slashing costs to pump up
profits. As the saying goes: “Never let a crisis go to waste.”
Not true, maintained company representatives
speaking with FreightWaves.
The reorganization announced Tuesday was in the
works long before the coronavirus struck. “This is not about cost savings
whatsoever. It’s about being more efficient with customers,” asserted a Maersk
Line spokesman.
Major changes announced
Maersk announced Tuesday that it was closing its
Safmarine ocean brand at the end of this year and integrating that business
into Maersk Line. South Africa’s Safmarine was founded in 1946. Maersk
purchased the company in 1999.
Maersk is also retiring its Damco brand at the
end of this year. Damco traces its roots to a predecessor Dutch company founded
in 1918; it later became part of P&O Nedlloyd. Maersk purchased P&O in
2005. Damco provides air cargo and less-than-container-load (LCL) freight
forwarding. The Maersk group’s logistics division will take over those
services.
How many job losses?
Maersk will keep other brands, such as Hamburg
Sud and SeaLand. However, there will be changes: Maersk and Hamburg Sud back
offices “will come closer together.”
Danish newspaper Borsen pegged potential job
losses at 3,400: 2,300 at Damco and 1,100 at Safmarine. Other outlets quoted
Borsen’s numbers. CNBC and Fox Business quoted a Maersk spokesperson as saying
that 26,000-27,000 employees “would be affected” by the reoganization. Maersk
has around 80,000 total employees. Jefferies analyst David Kerstens used the
Borsen numbers to estimate that headcount cuts could result in $200 million in
annual savings.
But these early estimates are problematic.
“Affected” does not mean “laid off.” And even the 3,400 figure looks high.
FreightWaves was told that this is the total number of employees at Damco and
Safmarine and there are plans to retain some of them.
“Maersk is not disclosing any figures at this
point in time,” said the Maersk spokesperson. There are work councils (labor
unions) in several of the countries affected, as well as other issues, meaning
that the final count may not be known for another month.
In an email to employees that was obtained by
FreightWaves, Maersk CEO of Ocean and Logistics Vincent Clerc said “it is not
to say goodbye to skilled and dedicated employees, but, regrettably, it is a
consequence of the integration.” The goal is to finalize job cuts by Oct. 1, he
wrote.
Reorg timing
It seems logical to assume that a global health
and economic crisis would lead to belt-tightening. U.S. and European
corporations are making big job cuts in the second half of this year.
But Maersk is actually doing extremely well amid
the COVID-19 crisis, with second-quarter profits almost triple those of the
same period last year.
According to the Maersk spokesperson, the virus
did not spur the reorganization, although it did affect the timing of its
implementation.
“This process actually started in October of
last year,” he explained. “It’s not a short-term cost-savings exercise. This is
about Maersk’s vision of being a global integrator for container logistics.
This is about fine-tuning things and making it easier for customers across
their supply chains, because there will be fewer ‘touch points’ for them.
“This was originally planned to be rolled out in
May. But with the pandemic and so much uncertainty in the marketplace, it was
not the right time, so we waited until September,” he said.
In other words, the timing of the announcement
is not a negative reflection on market conditions, but a positive one. The
group is not further battening down the hatches. It is weathering the storm and
now confident enough with current conditions to forge ahead with structural
corporate changes.
“We have a solid foundation and we strongly
believe that it is the right time to take the next big leap towards
customer-centricity,” Clerc told employees.
Rationale for ends to Safmarine, Damco
Clerc described the company changes as “deep and
profound” and laid out the two tenets driving the moves. “Everything we do
should be guided by two fundamental questions: How do we create the most value
for our customers and how do we deliver most efficiently the products and
solutions they buy from us? This should permeate all of our decisions.”
Asked about the decision to end the Safmarine
brand, the Maersk spokesperson responded, “So much of the Safmarine network is
really a Maersk network, so from an ocean-product perspective it made perfect
sense. Safmarine is very good at customer service and the customer experience,
so Maersk would be keeping a lot of Safmarine talent as a result. It’s just
that from a pure liner-network perspective, there’s duplicate activities.”
The press release also stated that the “value
propositions” of Maersk and Safmarine converged “as the digital interactions
with customers have increased.”
Regarding the takeover of Damco’s air cargo and
ocean LCL freight forwarding, Maersk said “it has become apparent through close
customer engagements that the value proposition of Maersk can be greatly
enhanced with the expansion of multiple modes of transport.”
Hamburg Sud changes
Maersk bought Hamburg Sud in 2017. The group has
already obtained substantial back-office synergies. What’s new following the
reorg?
Hamburg Sud spokesperson Rainer Horn told
FreightWaves, “After we became part of the Maersk family, we integrated the
operational side: container fleets, container maintenance, stowage planning,
port stuff, procurement. All non-customer-facing functions where you can reap
all the synergies. That was quite successful.
“Now what we [Maersk and Hamburg Sud] will do is
work together more closely on the commercial side,” Horn said. “But again, not
for the customer-facing part. That will stay Hamburg Sud [and Maersk] to the
customers and the teams won’t change.
“But in the background [in the commercial back
office] you will have more alignment and people working closer together,” he
continued. One example: Maersk divides the world into six regions, Hamburg Sud
five. Regions will be aligned and each brand’s regional teams can work together
better.
Will multibrand strategy survive?
The retirement of the Safmarine name comes on
the heels of CMA CGM’s decision to cease using the APL brand name in the
trans-Pacific market.
“This might be a sign that the times of managing
multi-brand strategies on the major deep-sea trades is slowly coming to an end,”
wrote SeaIntelligence Consulting CEO Lars Jensen in an online post on Tuesday.
“If this is indeed [the case], it of course raises the question as to not only
the long-term future of the Hamburg Sud brand, but also …. COSCO’s long-term
plans with OOCL.”
Maersk itself confirmed that increased digital
interactions with customers had decreased the differentiation value of
Safmarine’s brand. Why wouldn’t the same be true for brands like Hamburg Sud,
particularly given Maersk’s comments during the latest quarterly call on its
surge in online bookings?
“Maersk doesn’t want to close Hamburg Sud as a
brand,” affirmed Horn. “Maersk’s multibrand approach is that you can cover a
wider range of the market with several brands than with only one. Take the
largest car maker in the world, Volkswagen. They have Audi, Volkswagen,
Porsche, Lamborghini, Bentley — a brand for each niche in the market.
“Hamburg Sud is in some parts of the world a
niche player; in other parts, like Brazil, a market leader.”
Brand strength
“It’s a very strong brand. In the year when
Hamburg Sud was sold, its volume increased 5%. That’s because of the loyalty of
our customers. Usually a company loses 10-15% of its volume in a merger and
acquisition, because the competition is after your customers. The fact that we
increased our volume during a takeover is like a miracle.
“Our customers appreciate our very personal
service. They have known our salespeople and customer service people for
years,” said Horn.
“Of course, people are concerned, but Hamburg
Sud remains Hamburg Sud. That will not change
American Shipper — 01 Sep 2020