Maersk re-organises for Damco recovery

In 2012 A.P.Moller-Maersk Group rearranged its business into “four big business units” to quote its chief executive officer Nils Andersen. The first three are its container shipping, container terminal and oil businesses. At the group’s capital markets day it was announced that the fourth has just been renamed and is now called APM Shipping Services. It contains Damco and Maersk Supply Services alongside the oil products tanker business and its port tugs business.

As presented by Morten Engelstoft, divisional chief executive officer, the creation of APM Shipping Services appears to be not just a move to rationalize the group but also focus on a number of businesses that are facing problems. The combination within APM Shipping Services is eclectic. Three of the four are capital intensive vessel based businesses, yet Damco is asset-light with a very different – and possibly more complex – business model.

Certainly Damco also appears to be the biggest problem for Engelstoft with the company having been losing money for eighteen months. The response is to lay the emphasis on cost cutting with the company aiming for reductions of between $30-40m. There was also reference to redesigning the internal management structure, with a reduction in the number of regional divisions from eight to four.

What there was not was an explanation of how Damco got into this mess. Whilst the move to the Netherlands from Denmark has been criticised this can hardly be blamed for the comparatively low level of productivity highlighted by Engelstoft. Is the higher-cost base at Damco that he also described due to higher levels of customer-service related spend, for example? As the chief executive officer admitted the 4PL offering at Damco is strong however this is not reflected in the profits. Another question is why the situation at Damco deteriorated so quickly. During the tribulations of Maersk Line in 2010-2012, for example Damco performed well, delivering profits on minimal levels of capital investment, yet suddenly the company fell into losses.

Possibly what might have happened was an increase in costs driven by the previous chief executive officer of Damco’s strategy of developing more sophisticated information based services combined with a down-turn in the forwarding market. It is also possible that the acquisitions that Damco made in air freight forwarding may not have worked-out.

If Damco is now to hack-out these initiatives in the course of its cost-cutting strategy it will need to follow this by a new strategy. If not Damco will be left looking directionless and sub-scale against the biggest players in the market. And that might be too much reason for the wider A.P. Moller-Maersk Group not to sell it.