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September 2 2019

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4 The Journal of Commerce | September 2 2019 Mark Szakonyi MAERSK LINE'S SECOND-QUARTER earnings reveal a company delivering stronger-than-expected profits and not chasing market share, but also how far the world's largest container line has to go to realize its ambition of becoming an integrator. Much will hinge on whether new integrated offerings, some of which have been taking shape in the US over the last several months, connect with customers. Maersk's strong second quarter, despite US-China tariffs that the carrier warned could reduce up to 1 per- cent of global volume next year, will strengthen its resolve in making what amounts to an existential bet that the integrator path is the best response to the commodification of ocean ship- ping. In its fourth straight quarter in the black ($154 million in net profit), Maersk's earnings from its ocean segment before interest, taxes, depre- ciation, and amortization (EBITDA) had a 14.9 percent margin, slightly better than Hapag-Lloyd's 14.7 percent margin for the second quarter. The focus on profitability was evident in Maersk's volume growth of 1.4 percent in the quarter, which "was below global market growth and hence Maersk have once more reduced their global market share slightly," noted Lars Jensen, head of consulting for Sea-Intelligence. "However, this paved the way for a slight freight rate increase (1.5 per- cent on a year-over-year basis) in a market where rates otherwise have been under pressure," Jensen said. Maersk's conservative approach to capacity is in line with its focus on profitability. "We will need some extra tonnage chartered in because we have ships retrofitting scrubbers, and have invested a little more capacity in slow steaming this year," CEO Soren Skou said. "But we want to remain disciplined on capacity and stick to our guidance of 4 million TEU deployed capacity because it helps drive utiliza - tion up and unit costs down." Skou has set a 2021 target to make landside logistics account for half of the company's revenue, versus 17 per- cent in the last quarter. To transform the company into a self-described inte- grator in container shipping, which implies involvement in end-to-end transits, this shift will have to accel- erate. Non-ocean revenue "is an area where we in the coming quarters will aim to do better," Skou said during an Aug. 15 earnings call. In an Aug. 16 interview with The Journal of Commerce, Narin Phol, regional managing director at Maersk North America, highlighted how the company's integrator strategy is man- ifesting itself in the US market, pointing to the use of terminal and landside assets to provide faster cargo delivery. New products offering faster cargo release from terminals and simplified transloading parallel new flexibility in how shippers book ocean freight and obtain support on customs compliance. "A perfect example of the integrator vision come to life is in our Maersk Accelerator product," under which cargo will be delivered anywhere within a 50-mile radius of the Port of Los Angeles within 48 hours of discharge, Phol said. This is accomplished by connecting Maersk Group subsidiary APM Terminals with the carrier's warehousing and distri- bution management capabilities and truck providers, which cuts average delivery times by three to five days. Maersk in January also began offering an integrated ocean and transloading product using warehouse facilities in Southern California in which the through bill of lading will be on a single invoice. The product origi- nally was sold through Damco, which Maersk last year restructured as a pure forwarder after incorporating logistics services on top of ocean services. Maersk said it already has doubled volumes on its destination cargo man- agement solution, offering large and medium US retailers tracking of their shipments on the water, forecasting of discharge dates, and handling of pickup orders to truckers in advance of the vessel arrival. Of its non-ocean services, ware- housing and distribution products, which include cross-dock and trans- load operations, have seen the fastest growth. Volume rose 9.8 percent in 2018 and is forecast to expand 10 to 15 percent in 2019. The company has expanded its warehouse footprint 30 percent since January 2018. During trans-Pacific service contract negotiations in the spring, Maersk rolled out a four-tier ocean allocation offering, which provides so-called basic weekly allocations spread evenly over the 52-week life of the contract, to an unlimited option, giving all volumes allocation. Lastly, with the integration of customs brokerage Vandegrift complete, Phol said Maersk is winning new business thanks to the transparency and sim - plicity of its track-and-trace module, Maersk Customs Navigator. Maersk Spot, an online guaran- teed booking platform that penalizes shippers who fail to deliver cargo and rebates them if Maersk doesn't keep up its end of the booking, will be rolled out on US trades later this year, pending approval from the Federal Maritime Commission. Launched in June, the product now accounts for about 8,000 TEU weekly, 8 percent of the carrier's total spot cargo, helping Maersk further cut costs by reducing no-shows, thus improving utilization. The container carrier has shown it can cut costs; now shippers will determine whether they need Maersk to be an integrator. email: twitter: @markszakonyi Leaner toward integration The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, September 2, 2019, Volume 20, Issue No. 18. The Journal of Commerce is published bi-weekly except the last week in December (printed 25 times per year) by JOC Group Inc., 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Subscription price: $595 a year. Periodicals postage paid at New York, N.Y., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Letter From the Editor "We want to remain disciplined on capacity because it helps drive utilization up and unit costs down."

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