Strategic Responses by Maersk to the Slowdown in Global Economy - Essay Example

An Analysis of Strategic Responses by Maersk to the Slowdown in Global Economy Introduction MAESRK COMPANY PROFILE MaerskCompany was established in the year 1904. Historically, the company was started by Dampskibsselskabet Svendborg, and was later founded by captain Arnold Peter Muller (Cozzolino, 2012, 56-89). The headquarters is in Copenhagen in Denmark. It trades with container shipping and terminals, ferry and tanker transport, semi-submersible drilling rigs, oil and gas exploration and production. Its revenues are estimated to be in excess of DKK 322.52 billion in the year 2011. The operating income of Maersk Company is somewhere in the region of DKK18.083 billion in the year 2011. According to Cozzolino (2012, 400-560) the total asset of this company is estimated to be DKK374.72 billion in the year ending 2010. The total equity of Maersk Company was DKK192.96 billion. On average, it had employees summing up to 117000 the year ending 2012. It had subsidiary and offices in more than 135 countries worldwide. It is ranked 147 on wealth globally of the 500 list of 2011 position that is down from 107 in the year 2009 (Cozzolino, 2012, 439-467). Maersk response to change in business environment following economic slowdown Innovation of slow steaming ships This was after the escalation of fuel prices and carbon dioxide emissions was a concern in global warming (United Nation, 2008, 78-89). The resulting innovation was slow steaming ships that made it cut down on fuel use and emissions of carbon dioxide gas. The year 2009, significant fuel saving and carbon dioxide reductions as a result of sailing at 12 knots instead of sailing at 24 knots resulted to slow steaming and as a result a standard operational procedure and methods for Maersk ships was found (Cozzolino, 2012, 356-400). A Bunker leap was introduced to cut down on energy consumption and fuel expenditure, a strategy that resulted to slow steaming of the entire process into full focus. They found out that 4000 tons of bunker oil could be saved during round in Europe within a large ship as Emma Maersk to Singapore. Steaming engines were profitable on multipronged facet-making the engines, reduction on carbon monoxide and fuel consumption was also reduced (Cozzolino, 2012, 64-98). Maersk was then mandated to redesign ships engine that was low in consumption of fuel. These were after engineers convincing that the even though they were slow on fuel use and slow in speed they did not cause danger to the crew. These were applauded by united nation because global warming was becoming an issue in the world. Generation of value in chain of supply Another key area was generation of value in the chain of supply. This takes three different forms i.e. Value expansion, value creation or capture and value retention. In value expansion, the field of strength as a result of the relationship with traffic growth along in the supply chain have been deeply explored by Maersk. Then value creation or capture. This concern new activities within chain supply and is has a connection resulting from a paradigm shift to a new terminal, decreased distribution costs, new technology like slow steaming engines, new markets(Todrin, 2011, 700-777).This process involves the higher returns in term of value added as new activities ought to be created. Vessels deployment This was done to meet the changing traffic demand on different routes. In the year 2013 Maersk ships traded in the Europe Asia loop. Slowdown of economy on other routes were accommodated by reduction in capacity following those particular routes. (Todrin, 2011, 345-403). Asia-Europe route has been overwhelmed due to increasing in capacity while other areas have experienced a reduction due to the economic meltdown. This cascading of smaller ships to other routes but large in size generate pressure on charter tonnage and freight volatility. Other vessel management also involve the replacement of old ships for new ones, the old ones being sold or redeployed on other routes. The main aim was capacity optimization. Capacity adjustment This was achieved through laying up vessels, slow streaming, blanked sailing (cutting services) postponing new-build deliveries (ROSENBERG, 2012, 105-109). Though these may attract a fine or penalty with the builder. The table below show how services were suspended following the economic downturn as the response. The trade was dropped by 21% between October 2008 and March 2009 as seen in the table. March 2009 October 2008 % change Total no. of weekly services (North Europe/Med) 45 (26/19) 64 (36/28) -30% Total .ships deployed 406 549 -26% Average vessel size (TEU) 7310 6517 12% Total capacity (TEU) 2.97 million 3.58 million -17% Average weekly capacity (TEU) March 2009 vs. October 2008 319,301 405,901 -21% Average weekly capacity (TEU) 1Q 2009 vs. 4Q 2008 335,793 397,350 -15% From Cozzolino, A. (2012. pp 23-27). Humanitarian logistics cross-sector cooperation in disaster relief management. Berlin, Springer. Forming alliances to gain pricing power and reduce cost Another area that Maersk line responded to the economic slowdown was by striking a deal with all those vessels it shares the same routes known as (Vessels Sharing Agreements). This enabled them to maximize the financial and environmental impact of its finding of an aforementioned slow steaming engines. (Todrin, 2011, 34-46). They were able to convince the skeptical engineers that the slow steaming would not damage engines but instead profit the companies in the volatile market plagued by high oil prices. They were later mandated to redesign the ships into slow steaming ones (Blecker, & Aldarrat, 2008, 57-69). Maersk in forming the alliances also were able to secure entry in the specialized markets, essentially using its new partners as the feeder for its international routes. In 1985, for instance, co-operative relationship with French and Italian container-ship companies provided Sea-land with entry to Kuwait and Bahrain ( CUDAHY, 2006, 68-79).. Diversification Another area where Maersk has explored was diversification of business area so that they do not dwell on one area thus spreading the risk and reducing impact of the economic meltdown on the event that of one or two of business segment suffer the menace (TENOLD, IVERSEN, & LANGE, 2012, 47-53). This has ensured spread of risk hence on the event of economic slowdown they are not affected much; the area that Maersk they have really invested in as diversification is container terminals, as well as shipping, tanker and ferry transportation, submersible drilling rigs, oil and gas exploration and production (Todrin, 2011, 84-97). In line with diversification, Maersk Company come up with container liner business. AP Moller-Maersk is an integrated shipping company whose success in the container liner business has overshadowed the rest of its shipping business. (Oman, 2009, 100-15). The capital- and resource intensive container liner business is run on a freestanding basis in line with the trend toward specialization (GREVE, HANSEN, & SCHAUMBURG-MÜLLER, 2007, 11-17). During shipping crisis in the middle of the 1980s, A.P. Moller-Maersk decided ambitiously on expanding within container shipping, complementing its existing lines with a West Coast-Middle East, based on Trans-shipments in Hong Kong. A major hub in Algeciras in Southern Spain, which provided the foundation for the company’s own feeder, lines in West Mediterranean as well as access to the West African coast (Moller-Maersk, 2008, 23-30) Conclusion Generally, the strategy taken in response to the economic meltdown were forming alliances with other ships company using the same route to cut on cost and have bargaining power, capacity adjustment was another best move, vessel deployment, slow steaming ships and generation of value in the chain of supply. These measures were efficient in living in the times of economic slowdown. References BLECKER, T., & ALDARRAT, H. (2008). Management in logistics networks and nodes: concepts, technology and applications. Berlin, Erich Schmidt. COZZOLINO, A. (2012). Humanitarian logistics cross-sector cooperation in disaster relief management. Berlin, Springer. CUDAHY, B. J. (2006). Box boats: how container ships changed the world. New York, Fordham Univ. Press. GREVE, M., HANSEN, M. W., & SCHAUMBURG-MÜLLER, H. (2007). Container shipping and economic development: a case study of A.P. Moller - Maersk in South East Asia. Copenhagen, Copenhagen Business School Press. Oman. (2009). Oman 2009. London, Oxford Business Group. ROSENBERG, J. M. (2012). The concise encyclopedia of the great recession 2007-2012. Lanham, Mad, Scarecrow Press. SORNN-FRIESE, H., & HANSEN, C. Ø. (2012). Landlubbers and sea dogs: the case of labour mobility in the Danish maritime sector in a time of accelerating globalization. [Copenhagen], Copenhagen Business School Press. TENOLD, S., IVERSEN, M. J., & LANGE, E. (2012). Global shipping in small nations: Nordic experiences after 1960. Hound mills, Basingstoke, Palgrave Macmillan. TODRIN, D. (2011). Successfully Navigating the Downturn Economic and Competitive SurvivalStrategies.NewYork,EntrepreneurPress.http://public.eblib.com/EBLPublic/PublicView.do?ptiID=714614. United Nations. (2008) Review of Maritime Transport 2008. United Nations Publications. Wet Feet. (2008). A.P. Moller-Maersk. Philadelphia, PA, Wet Feet. http://site.ebrary.com/id/10320452. Read More