The World’s two biggest shipping companies are both re-organizing their businesses. The effect of the pandemic on supply chains has been obvious to us all, from empty shelves in supermarkets to long delivery dates on certain items, and the usual doomsday prophesies of the media. However, the re-organization of the world’s two biggest shipping companies may well have a longer term effect on international trade.
Simply stated, what was the largest shipping company in the world, A.P. Moller Maersk is downsizing its fleet, while the Mediterranean Shipping Company (MSC) is intent on substantially expanding its fleet.
Maersk is a familiar name to anyone interested in international shipping. It’s the industry’s “blue blood” and has been in existence since 1904. MSC, on the other hand, is a company almost no-one has heard of, and the principals apparently want to keep it that way. When its CEO, Soren Toft, spoke at a major shipping conference in Long Beach this month, he revealed almost nothing. When questioned, he said gruffly, “We’re not going to make [talking in public] a habit.” However, numbers speak for themselves: When MSC takes delivery of the new container ships it has on order, its fleet will be 40% greater than that of Maersk. For a company that started with a single ship trading between Somalia and southern Italy in 1970, its growth has been incredible.
The philosophy of the two companies reflect totally different approaches to the future; one will expand, and one will consolidate. It is a huge gamble for both of them. It is also a gamble with the world’s supply chain, which is a risk for us all.
Strangely, perhaps, the companies have been working together for several years. Maersk over-ordered mega-sized container ships in the mid-2010s, and needed help filling them. MSC obliged, and the two formed a partnership called 2M. It was a bit like airlines using code-sharing agreements to swap passengers. The system worked well in standardizing service across the industry: Maersk was always known as the industry’s most punctual, best-staffed, and most service-oriented carrier. MSC, however, was known by its adulterated acronym, “MSC means “maybe ship come”.
Perhaps inevitably, the partnership highlighted the differences in the companies. It was convenient and expeditious for a time but the different philosophies were bound to create problems. The partnership is in the process of dissolution. Maersk will become more of an integrator, concentrating on regional supply chains and flexibility. MSC will concentrate on being the world’s largest box carrier. Both are betting on their version of the future since the investment and the long-term vision required in this industry, are both substantial.
Both philosophies are potentially dangerous. Over-capacity on the part of MSC may well drive down shipping rates and contribute to economies of scale but, given its previous reputation, it may also mean a slippage in standards: Last month, the Australian Maritime Safety Authority, a regulator, said it had already detained five MSC ships this year because of sub-standard maintenance practices. Equally, Maersk’s entry into the consolidator market puts it in direct competition with existing freight forwarders, such as DHL and Kuehne+Nagel, which may not work well either.
Purely from a world economic point of view, these two approaches together could be positive. If MSC drives down shipping costs, this would help reduce goods prices. If Maersk becomes a reliable, smooth integrator, supply chains could go back to being as boringly-reliable – and un-newsworthy – as they once were.
One can hope, and encourage, but I wouldn’t bet the farm on it.