Divide & Conquer: Maersk Splits to Go After Competition

Maersk Cargo Ship pic: Maersk Line

It’s a new twist on an old strategy. Usually with divide and conquer, it is the enemies or subjects intended for rule that an entity divides in order to overtake or rule. Maersk, the largest international shipping carrier by capacity in the world, is splitting itself to take over its competition on the waters.

Maersk announced Thursday in a press release that it would be splitting into two divisions, one for shipping and one for oil:

A.P. Møller – Mærsk A/S will become an integrated transport and logistics company with digitalised and individualised customer solutions.

Oil and oil related businesses, either individually or in combination, to be separated from A.P. Møller – Mærsk A/S. Maersk Oil will focus on optimizing and strengthening its strong position in the Danish, British and Norwegian parts of the North Sea.

Reorganising A.P. Møller – Mærsk A/S into two separate divisions; Transport & Logistics and Energy.

Maersk’s diversification between shipping and oil offered the company more stability than other carriers could boast in the middle of tough years of overcapacity and low freight rates in the international shipping industry. However, the oil glut and price crash in 2015 caused Maersk to be dealing with two separate, struggling industries.

Being in two struggling industries at once caused Maersk to post a two-and-a-half billion dollar loss in the fourth quarter of 2015! For that reason alone, it would make sense to split into separate divisions to handle the operations in these two industries.

In Maersk’s press release, Chairman of the Board, Michael Pram Rasmussen says:

The industries in which we are operating are very different, and both face very different underlying fundamentals and competitive environments. Separating our transport and logistics businesses and our oil and oil related businesses into two independent divisions will enable both to focus on their respective markets. This will increase the strategic flexibility by enhancing synergies between businesses in Transport & Logistics, while ensuring the agility to pursue individual strategic solutions for the oil and oil related businesses.

The focus that Maersk’s transport and logistics division will have appears to be the acquisition of smaller carriers.

The Wall Street Journal reported:

“I expect to see consolidation in the industry because many carriers haven’t made money for years and that can’t be sustainable in the long run,” Maersk group chief executive Søren Skou told The Wall Street Journal. “We will make sure we have strong capital and better utilization of assets so we have the fire power to do big things if opportunities come up.”

Make no mistake, Maersk is talking about having the firepower to take over smaller carriers. In fact, Maersk will no longer be expanding by ordering new ships but by overtaking the competition.

“The owner of the world’s largest container shipping line will stop ordering newly built vessels and instead pursue takeovers in an industry that has been plagued by overcapacity for almost a decade,” reports Hellenic Shipping News.

The Hellenic Shipping News article went on to quote Maersk’s Chairman of the Board:

“If Maersk Line needs to grow, it doesn’t make sense to order new ships as there are already too many ships in the market,” Rasmussen said. “So if we want to grow, we need to do it through acquisitions so that we don’t flood the market with more ships.”

…

Rasmussen said Maersk Line is “well-equipped and ready,” for acquisitions.

While he declined to comment on specific targets, he says options include shipping lines that operate mostly on trade routes overlapping with Maersk’s, which will “give us a lot of synergies.” It’s also looking at rivals who are strong “in an area where we aren’t present,” so they “fill a hole” in Maersk Line’s network, he said.

I love those last two sentences. Maersk is looking at shipping lines in trade routes overlapping with its and trade routes it’s not present in. Yeah, that’s all trade routes.

Maybe instead of divide and conquer, we could call Maersk’s strategy divide to conquer. Expect to see some big news from Maersk’s shipping division as it goes after the competition.

With the announcement of its new strategy, Maersk stocks have risen. Look out carriers, Maersk is coming for you.