Tag Archives: Maersk

2M Alliance will end in 2025, say Maersk and MSC

With all the talk of breaking up the alliances, this decision by Maersk and MSC is smart. Each line now has a ready answer for regulators, both in the EU and the US.

The decision is reminiscent of what happened with IBM and ATT. In those cases, the US regulators sued these two giant companies on antitrust grounds. At the time, IBM was dominant in computers, and ATT was dominant in telephones, and there were concerns of price fixing with both companies. In each of these cases, the government had to take legal action against the firms. But the lawsuits dragged on and on; giant companies can easily afford large legal entourages that can string out a proceeding forever.

One of my good friends and former bosses led the IBM antitrust management team.

Somewhere in the proceedings, while imagining life after the breakup, each of these firms came to the conclusion they would be better off broken up. So each of them proposed a split-up. The proposal itself was enough to defuse the lawsuit’s consequences, and reduce concerns the regulators had.

For a short while, I worked for Lucent, which was one of the spinoffs of ATT; it was the Western Electric manufacturing division, and included Bell Labs and other electronics manufacturers. Other ATT spinoffs were the ‘baby Bells’, the regional telephone companies. Now, 40 years later, they are all gone too. So is local phone service, replaced by cell phones, so a monopoly in local landline service is not a concern. Lucent is also gone, merged into Alcatel, a large European concern with partial Chinese ownership, and is called Alcatel-Lucent. It’s a private concern.

IBM spun off its printer and PC division into Lenovo, also a Chinese company, and while they still support mainframe computing today, are now more of a software company.

I think it’s a smart move to defuse regulatory concern about alliances. The political atmosphere right now would definitely support breaking them up. Huge profits in times just past, and terrible service for customers in the past and right now make the alliances an easy political target. But saying it’s going to end anyway should buy Maersk and MSC some negotiating room with the regulators. The only issues then will be how they preserve service; these are easily dealt with by making some kind of plans that man or may not ever be implemented.

I think the big question for Maersk and MSC will be the effect on their capital expenses and on their service guarantees. The rationale for alliances was that more regular service could be offered on an alliance route because the carriers covering it would share the job of providing regular ship sailings. That would reduce the need of each firm for more ships. That’s much lower capital expense.

Alliances are a great example of business collaboration to reduce costs, here capital costs (since the voyage operating costs are ‘covered’ by the cargo). Capital is expensive; no one can buy enough ships without borrowing, or using up cash on hand, or asking for more investment.

But in recent times, carriers are blanking sailings when they don’t have full ships. Service, even on alliance routes, has deteriorated to an awful level for container shipping.

It’s hard to see how Maersk, for instance, can cover a 2M alliance route adequately for a large customer, who may require weekly shipments. Some of the business will have to go to another carrier. And then the scheduling will not be straightforward. Throw blanked sailings into the mix, and customers will suffer.

But the regulators will be appeased; they can’t regulate as much when the alliance is gone.

I think the big problem of long-term success for ocean container carriers is customer service. They have to figure out how to set delivery expectations for customers and then deliver to them reliably. Hopefully at a profit.

Another take from Drewry is posted below.

By Nick Savvides 25/01/2023

2M Alliance will end in 2025, say Maersk and MSC – The Loadstar

Container Insight 25 Jan 2023

Your move, Maersk

Maersk faces $180m claim for US shipper losses in legal row over contract

A shipper consortium from New York claims Maersk failed to provide space the consortium had contracted for, and instead sold the space to others at higher spot prices. So the consortium members had to procure their slots on the spot market too.

The consortium, U Shippers Group, claims Maersk also offered their space to another shipping consortium, in violation of the contract. U Shippers believes the damage is over $180 million.

The contract with U Shippers had a volume incentive3 program (VIP), based on the number of containers shipped. Because space was not provided, U Shippers did not get credit for payments they would have received had the space been available.

It’s a nasty dispute. I suspect that this was a result of a local office of Maersk taking some liberties. The picture may not be totally clear, either; perhaps some of the shipments were a little iffy.

It will be interesting to follow up and see the FMC decision in the case. It won’t be settled for over 6 months.

By Nick Savvides 02/09/2022

Maersk faces $180m claim for US shipper losses in legal row over contract – The Loadstar

Maersk predicts even better remainder of 2021

The ocean shipping line Maersk is on track to earn over $22 billion in profit (EBITDA, in financial terms; earnings before Interest, Taxes, Depreciation and Amortization, if you are not familiar.) this year. Free cash flow will be over $14 billion. That is a lot of money.

Capital expense, for new ships and the like, will be around $7 billion.

This graph, from their annual report, shows Maersk’s EBITDA over the last several years.

Source: Maersk 2021 Annual Report.

Here’s Maersk’s most recent annual report in full.

18 September 2021 Jack Donnelly Shipping Lines

Maersk revises earnings forecasts, predicts even better remainder of 2021 – Port Technology International