Alliance between MSC and Maersk ends in 2025; MSC invests in new ships, Maersk in logistics

The Mediterranean Shipping Company and AP Møller-Maersk, who since 2015 had put aside their rivalry and ignored opposition from regulators to form a capacity-sharing alliance, have now agreed to part ways, with differing focuses on the future of the industry.

Maersk containers could be carried on MSC ships and vice versa, reducing the operating costs of both groups without reducing the number of ports they can serve. The pact helped reshape container shipping, an industry whose profits have traditionally been tied to the ups and downs of the global economy. Within two years, other big players such as France’s CMA CGM, China’s Cosco and German liner Hapag-Lloyd had struck similar deals.

But now MSC, which is based in Switzerland but controlled by an Italian family, and Maersk, the venerable Danish conglomerate, are divorcing. This year they confirmed that the so-called 2M alliance will end in 2025. Eight years on from the inception of the agreement, the dynamics of the container shipping business are beginning to change dramatically – in a way that has important implications for the future trajectory of globalization.

The background is the boom that the two companies experienced during the Covid 19 pandemic. After years of highly cyclical and often weak earnings, shipping companies rallied to record profits as ships queued in ports to offload and customers rushed to load goods onto a dwindling number of available ships.

Record profits have freed Maersk and MSC to sever ties and invest heavily, but the two companies have strikingly different approaches to the future of their industries.

MSC has ordered a significant number of new ships and overtook Maersk in tonnage last year – an obvious bet on continued growth in world trade. Maersk, on the other hand, is investing in broader logistics facilities like new warehouses, trucks and planes to appeal to customers worried about future supply chain disruptions.

With the two lines tracking very different prices, industry watchers aren’t sure which strategy, if any, will pay off. Large cargo ships have more money “than they can use,” says Lars Jensen, managing director of shipping consultancy Vespucci Maritime. With trading now slowing after the dislocations of the pandemic, they have a rare opportunity to take advantage of that money.

But years of exceptional profits have also drawn the attention of regulators and the public, while owners of highly polluting ships are under pressure to invest in reducing emissions. The industry that helped crank the wheels of globalization is now facing its consequences: reshoring and rising economic nationalism.

Set a new course

This isn’t the first time Maersk has tried to expand its business beyond ocean freight. Jensen, a former Maersk researcher, points out that the group tried to break into logistics about two decades ago, before the 2008 financial crisis wiped out investment plans across the industry.

Maersk boss Vincent Clerc has now set himself the ambitious goal of having logistics revenues surpass those of the shipping division within a decade. Logistics and supply chain services accounted for a fifth of the group’s total sales and less than 5 percent of profits in 2022.

Since 2019, the group has used its record profits to acquire at least 11 companies, including last year’s $3.6 billion acquisition of LF Logistics. The Hong Kong group’s 198 warehouses helped Maersk double the number of its own warehouses this year.

Clerc’s hope is that a best-in-class, end-to-end supply chain service will appeal to the big retailers, with whom the company is focused on building relationships. “The Covid years really exposed the vulnerability (of the supply chain),” he says. “The idea was to develop solutions for these large customers, who today are struggling with very, very volatile supply chains.”

Maersk had allocated more transportation capacity to customers most likely to buy these solutions, and Clerc argues that Maersk’s expansion into logistics will make the company more resilient during economic downturns.

But he risks angering the shippers who transship cargo for smaller retailers and consolidate it to help fill containers. By moving inland, these companies are turning from customers into competitors. Jensen says “quite a few” have told him over the past year that they are scaling back business with Maersk due to the company’s new strategy and a perception that the airline has not been offering them enough capacity lately.

The challenge for Maersk is to grow its logistics business at scale, he says, as shippers control up to half of the world’s containerized freight.

If MSC can grow its fleet quickly enough, it could offer those disgruntled customers a cheaper alternative. But like other shipping companies that have invested heavily in new ships, MSC faces the age-old risk: overcapacity.

Before the pandemic, shipping companies “suffered from miserable markets for ten years,” says Niels Rasmussen, chief shipping analyst at industry group Bimco. “But that was, to a certain extent, self-inflicted. Because just like now, they had many ships on order during an economic boom. This meant that the supply of ship capacity significantly exceeded demand as world trade deteriorated.

According to data provider Alphaliner, the Swiss group expects to deliver 122 ships, while Maersk has only ordered 28. Bimco expects the industry’s overall supply of container space to grow 12 percent over the two years to 2024, in large part due to MSC’s bulging order book — up to a doubling of expected demand growth.

As MSC and its peers wait for more ships to roll down the slipways, profits have already plummeted. During lockdown, a boom in spending on machines, home gyms and hot tubs helped drive up shipping costs. Now demand has weakened and freight rates have fallen again. Maersk forecasts underlying earnings to fall by as much as 94 percent this year.

Rasmussen expects box carriers to scrap older ships at a faster rate in the coming years, which the new supply will partially offset. He adds that they are already taking measures to limit supply, including eliminating port calls and reducing ship speeds.

The industry is preparing for new legislation that will see it pay more for greenhouse gas emissions from so-called “bunker fuel,” the heavy diesel oil used to power large ships.

The United Nations International Maritime Organization has previously set shipping a target of halving annual greenhouse gas emissions between 2008 and 2050, falling far short of the net-zero targets of other industries. But the company has pledged to step up that target next month, and more recently French officials have rallied support for a global tax on the industry’s greenhouse gas emissions.

Maersk has ordered up to 19 eco-friendly, methanol-powered vessels as the company aims to achieve net-zero emissions by 2040. However, these are “dual-fuel” vessels, reflecting concerns that they may still be dependent on fossil fuels if the limited supply of sustainable alternatives is not expanded in a timely manner.

Despite all this mounting pressure, the industry’s closest observers say that MSC and Maersk’s hold on the global supply chain is unlikely to wane any time soon, even if they pursue different courses.

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