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How to stop the commodification of container shipping

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DrI do not feel If it’s bad MSC, the Mediterranean Shipping Company, is the largest ocean carrier you’ve never heard of. It’s supposed to be like this. Its founder, Gianluigi Aponte, is a publicity-shy Italian billionaire, based in Switzerland, a country with no maritime borders and a culture of secrecy as deep as the ocean. His company has taken the seafaring world by stealth. He was born in 1970 with one trading ship between Somalia and southern Italy, Master’s Last year it overtook AP Moller-Maersk to become the world’s largest container shipping company. However, the culture of silence remains. When the CEOSpeaking at the Cargo Festival in Long Beach this month, Soren Toft revealed that it’s almost nothing. “We will not make [talking in public] he said gruffly.

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do not delay. Actions speak louder than words. MSC Maersk didn’t simply skip it. I left him in his wake. When it takes delivery of ships with an order, its gross tonnage can be 40% larger than its Danish competitor, according to Barclays’ Alexia Dogany. Meanwhile, Maersk, an industry leader with a pedigree dating back to 1904, is giving up on the pursuit of dominance on the high seas. Instead of a large order book, it hopes to focus investment on higher-return services along the supply chain, from ports to rail, road and air networks, becoming, in terminology, an integrator rather than just a box carrier.

In reality, then, the first and second in an industry in the World Trade Center place radically different bets on the future. They are doing so against the backdrop of a post-pandemic slowdown in container shipping, as well as long-term questions about the future of globalization. Whether it works or not, it provides an interesting natural experiment on different approaches to industrial commodification.

It’s an extraordinary parting of the ways. For eight years the two companies have been in an alliance called 2M, where, like airlines that exchange passengers in code-share agreements, they provide container space on each other’s ships. They always made an odd pair. Imagine a budget airline like Ryanair teaming up with a luxury airline like Singapore Airlines and you get the picture. MSC He was notoriously unreliable (the initials, an old joke gone, meant “Maybe the ship will come”). Staffing levels were, as one former Maersk employee put it, “negative to the point of starvation”. Maersk was the opposite. It was the most punctual, best crewed and most service oriented carrier. But in the mid-2000s, it ordered oversized ships, and needed help filling them. MSC, whose main selling point is cost, has been happy to adhere, in part to emulating Maersk’s service standards. It worked so well that alliances began to be considered a cornerstone of improving financial discipline in the industry. in tag MSCMaerskisation In 2020 Mr Toft jumped ship from the Danish company, where he was COO.

But there were drawbacks. As noted by Alan Murphy of Sea Intelligence, a research firm, alliances are “a fast track to commodification”. Once you’ve been entrusted with shipping to someone else’s ships, it’s hard to differentiate yourself. Furthermore, as the two companies’ strategies diverged, the alliance made less sense. MSC I used boom times during the covid-19 pandemic to order enough ships to go it alone. Because Maersk focused on logistics, it needed complete control over its shipments, which would have been easier if they were on their own ships. In late January, the two companies said they would end the alliance in 2025 and sail their separate ways.

Their divergent strategies are bold – almost to the point of recklessness. MSC’The buying spree will contribute to more capacity in the market this year, which will lead to lower freight rates. The assumption is that it hopes its sheer scale will enable it to achieve economies of scale, reduce unit costs and increase its market share, which is about 17% by volume. This is the classic approach of a market leader in an investment-heavy cyclical industry that feels it can outpace its competitors. The problem is that smaller shipping lines are also spending their pandemic windfall on new ships. Size might mean that, too MSCThe company’s standards are slipping, says Simon Heaney of freight consultancy Drewry. He noted that last month the Australian Maritime Safety Authority, a regulator, said it had detained five MSC Ships already this year, many due to poor maintenance practices.

Maersk has a different problem. However reasonable it may be to keep a disciplined order book, the risk is that its comparatively smaller fleet MSCCustomers who want a greater choice of sailing and destinations are deferred. Maersk argues that many of its customers will benefit more from reliability, data-driven insights, and flexibility in turning shipments around on short notice than from volume. Skeptics wonder whether customers will expend more for integrated services, especially in a weak economy. Moreover, Maersk’s logistics business will compete with freight forwarders, such as DHL and Kuehne + Nagel, which perform similar functions using a variety of carriers. If Maersk’s strategy gets their noses out of joint, they may stop directing shipments to its ships.

long slogans

Maersk has tried and failed in the past to play a pivotal role in this way. But this is a new era. She has more data than ever before to work with. Companies wondering whether to reduce their exposure to China, to create additional capacity in Asia, or for “close” production in North America may welcome new supply chain options. Maersk may be able to offer the advantage of offering climate-friendly shipping methods to customers willing to pay for green spaces.

From an economic point of view, the long-term success of both strategies would be a good thing. if MSC It reduces shipping costs, and this should help lower commodity prices. If Maersk becomes a seamless integrator, supply chains could go back to being the boringly reliable — and uninteresting — they once were. until MSC You will welcome that.

Read more from Schumpeter, our columnist on global business:
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It’s time for Alphabet to quit YouTube (February 23)
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