Maersk goes global with hubs and spokes

Maersk goes global with hubs and spokes    Most people know the name Maersk Line when it comes to container shipping. This Danish carrier seems to have been the largest boxship operator in the world for so long that few now bother to question how it came to be so.
   Maersk McKinney Moller, now in his 90s, had the opportunity and motivation to make it so when, as a young man, he entered into joint control of the family shipping company with his father A.P. Moller.
   A.P. Moller's official biography, With Constant Care, tells of the tragic capitulation of Denmark in World War II. Its fleet of ships were either fenced in by Germany or requisitioned by the British and American governments, with scant eventual compensation. The book explains how father and son vowed never to let themselves and Denmark be caught in such a weak position ever again.
   Maersk McKinney Moller must be credited with quite remarkable farsightedness and breathtaking scale of vision. When containerization arrived on the liner shipping scene, he was not a pioneer by any means. Initially he even decided that pallet-load unitization was a better way to go.
   However, by the mid-1970s it became clear that a very distinctive new style of Maersk Line operation had arrived. He launched a weekly fixed-day service linking the U.S. East Coast to Japan via Panama, employing a loop of nine identical 27-knot steamers. Not long after his first container service began, the price of oil rose so sharply that most owners with similar steam turbine containerships slowed down. Maersk Line was conspicuous in keeping up 27 knots so as to maintain its top of the market 'fixed-day weekly' service reputation.
   A.P. Moller group was also unique in designing and building a continuous stream of ever-larger new ships of all types at its own shipyard in Denmark. From very early on it was able to cascade its older containerships into new trades where Maersk Line proved a ferocious newcomer. The group was financially prudent, depreciating all its ships over 10 years, although they would last much longer (More recently this has risen to 20 years).

Patriotic Capitalism..Maersk McKinney Moller's greatest success probably lay in motivating a generation of young Danish men with a hard-working brand of patriotic capitalism. In general he preferred recruiting them into his business direct from school rather than from university. Initiative was rewarded and he challenged them to make decisions. Underlying everything was the ideology that what was good for A.P. Moller was also good for Denmark. A shareholding foundation was set up to ensure ultimate control of the group could never leave the nation.

Moller

   To Maersk watchers the world over this company seemed unstoppable, entering trade after trade in the face of stiff conference opposition and constantly springing unexpected surprises. For instance, P&O Containers and Maersk Line jointly designed their first post-Panamax class of ships together. To the chagrin of P&O, when Maersk's first one was delivered in 1996 (Regina Maersk) she was found to have had an extra hold secretly added, making her longer and bigger than P&O's!
   When A.P. Moller – Maersk eventually acquired P&O Nedlloyd in 2005, it gained a large fleet of containerships all highly compatible with its own. Alongside Maersk's 37 large, 17-rows-wide, Panamax ships (in the order of 7,000 TEUs to 9,000 TEUs in size) it instantly gained another 21 from P&O Nedlloyd.
   Six years earlier, when Maersk Line had similarly acquired the deep sea side of the United States' most important remaining container operator, Sea-Land Service, it also acquired its global network of container terminals. They included a brand new, fully automated offshore facility it had begun building at Salalah, strategically intersecting all the trade routes between Suez, Asia, Middle East Gulf, East Africa, India and Sri Lanka.
   Today, A.P. Moller – Maersk is the world's most globally integrated container-shipping operator in terms of ship capacity, terminals (APM Terminals) and trades. In order to better focus its marketing activities, it has even formed specialized short sea subsidiaries in Asia, Europe and Brazil, together with a deep sea marketing subsidiary (Safmarine) specializing mainly in trades with Africa and the Middle East/India. Safmarine shares space on Maersk Line loops in parallel with its parent.
   Finally there is Damco, the group's global forwarding arm, a powerful supporting force to Maersk Line, which has a free hand to fashion packaged service chain solutions combining a variety of internal or external elements.

Maersk Line As Common Denominator. These internal arrangements are like a club with various subcommittees, each with a defined sphere or profit center activity, but with only Maersk Line being a member throughout. The group's intra-Asian trading arm MCC Singapore, for instance, markets intra-Asian space on Maersk Line's deep sea vessels and fills in with dedicated local services of its own. Through an internal market it also acts as a feeder provider for all Maersk Line's services between Asia and the rest of the world. Very cleverly, by combining their container inventory data, sales staff in both organizations can use guide pricing with targeted marketing to direct equipment into Asian areas of high demand and away from oversupply locations. Maersk Line's own revenue optimization works on a more global basis, with regional trade managers each competing for their own internal space allocations.
   Much the same thinking as that underlying MCC applies with the group's latest short sea intra-European startup, Seago. It initially has taken over the management of four dedicated North Europe/Mediterranean loops previously operated by Maersk Line, but Maersk still has a large number of other services linking these two areas on their way to and from other parts of the world. Seago's role as a feeder for all Maersk's other long-haul loops shows up clearly with substantial arrays of small local connections, almost all operating out from and back into hubs at Rotterdam, Bremerhaven, Algeciras and Port Said.
   Belgian-headquartered Safmarine is also a profit center with defined areas of liner activity and its own container space allocations. These are almost always on Maersk Line's loops. As the former 'national' line of South Africa, it still promotes itself as being strongly Africa-centric. Safmarine takes slots on 40 of Maersk's 90 or so deep sea loops, of which 27 touch Africa. Most of the rest involve the Middle East, India or East Coast South America. Safmarine only takes space on one express Europe-Asia loop, the AE9, which happens to call at the group's Belgian terminal in the port of Zeebrugge.
   APM Terminals has steadily expanded in its own right globally, and has become the world's largest carrier-controlled container terminal operating company. Five years ago the group said it had more money invested in terminal assets than it did in ships, and this may still be the case. A recent Drewry's survey ranked it among the top four global container terminal operators by TEU investment share, more than three times larger than the next-largest carrier, Mediterranean Shipping Co.

Global Hubs And Spokes Emerge. In the past year or so the pattern of all these long-term investments seems to have been coming together in a quite remarkable way. This is most clearly seen in the overall route network of the liner operation, which, almost by sleight of hand, has transformed from a traditional route network of end-to-end 'trades' into a global 'hub-and-spoke' system operating at various levels.
   At one extreme there are still non-stop services on high-volume routes requiring 'best in class' transits employing 'largest in trade' ships at lowest, most competitive costs. At the other is a remarkable mega-regional and sub-regional hub network carefully constructed to continue the trend of best in class transits at lowest competitive cost. This unique structure enables Maersk to exploit or even foster new sub-trade opportunities with much higher revenue-earning potential than more traditional trade pathways.
   By making all the 'spokes' in a region pass through a central hub, Maersk is able to solve the age-old liner problem of keeping ships of optimum size full and balanced in both directions along each spoke. Where their cargo originates (from spokes on the other side of the hub), or where it may ultimately be going, (returning along them in the opposite direction), can be completely different.
   Put crudely, all that matters is that the volume of cargo that goes into a hub should be the same as that comes out. Further, when individual destinations need more cargo than others, there are more ways to make corrections. Targeted marketing at origins and adjusted pricing can be supplemented operationally by matching different-sized ships on the same or differently paired spokes. Some spokes change from terminating at a hub to passing on through, or vice versa.

Multi-port Hubs. The network constantly evolves with much evidence of 'work in progress.' Maersk has clearly solved problems thrown up by high numbers of loops intersecting at one point by using more than one hub in close proximity. For instance, each of the 15 loops it has that either terminate in Panama or pass through the canal, calls at one or both of Balboa on the Pacific side or Manzanillo (Panama) inside the Caribbean, in either direction. These strings arrive and depart in a balanced array to/from North America, Asia, Oceania, Latin America and the Caribbean, to the Mediterranean and North Europe as far as St. Petersburg in Russia.
   At the entrance to the West Mediterranean an even more dazzling double-hub has evolved at the ports of Algeciras in Spain and Tangiers in Morocco. Adding in the nine new local Seago feeder calls at Algeciras there are now 32 Maersk loops calling weekly at one or both these ports in either direction, including nine separate loops serving different countries in West Africa that tend to discharge in Algeciras and then reload in Tangiers.
   Not all the big Asia/Europe ships that pass through the Mediterranean stop at the Algeciras/Tangiers hub though. Four do, but the joint AE8/FAL5 loop shared with CMA CGM (averaging 13,471 TEU) does not; nor does Maersk's AE1 on its way to Felixstowe from Japan. Meanwhile the AE2 stops only at Valencia en route to Rotterdam, presumably to relay boxes for two MSC loops on which Maersk takes slots to East Coast South America.
   In the East Mediterranean, APMT's Port Said terminal is rapidly attracting hub status. Again, not all the loops passing through Suez call there, but it is noticeable that two of Maersk's three Asia/East Med loops shared with CMA CGM (AE3 and AE11) do, along with MECL2 from the U.S. East Coast and Houston. One of the two Seago loops that connect Port Said with North Europe (Euromed) runs non-stop to Felixstowe, and the other (Eurolev) stops only to call in Tangiers. Beyond Suez, Port Said's through loops connect directly to Jeddah, Dubai, Salalah, India and Asia. The addition of 12 new local East Med dedicated short loops from Seago bring Port Said's weekly total to 17.
   A similar picture emerges when considering Maersk's hub operation in Salalah. Twelve loops connect it to Jeddah, Port Said, Turkey, East Africa, South Africa, West Africa, West Med, Algeciras, Tangiers, East Coast South America, North Europe, North America, India, Colombo and Asia. Salalah belongs to Oman and is on an offshore island outside the Arabian Gulf. A single call in Salalah en route between Asia and Suez requires no deviation, and Maersk can offer transshipment with competitive transits to all these regions, either directly to a surprisingly high degree, or else via other hubs. At least one competitive service link from anywhere in the world to everywhere else usually seems to be in place.

Tanjung Pelepas. By far the largest of Maersk's regional mega-hubs is in Tanjung Pelepas, Malaysia. Here its largest ships converge from North Europe and the Mediterranean, meeting others from the Middle East, India, Africa, Australia, New Zealand and East Coast South America. It's a place to mix and match, depending where each loop continues onwards to call. Some terminate in Tanjung Pelepas, and it is a focus for booming local feeding and trade within Indonesia, Bengal and Indo-China. The main final destinations for the larger ships are ports in South China, Taiwan, Central China, North China, Korea and Japan.
   Two loops continue on to the West Coast of North America, one a joint loop with CMA CGM of 15 ships averaging 7,400 TEUs. It starts on the U.S. East Coast, sailing via Suez to Tanjung Pelepas and then calls at Hong Kong, Yantian, Shanghai and Busan en route to Seattle and Vancouver. The other one comprising 14 Maersk ships averaging 9,500 TEUs arrives at Tanjung Pelepas from North Europe, Algeciras and Port Said before calling Cai Mep, Nansha, Yantian, Hong Kong and crossing over to Los Angeles. Both loops return to Tanjung Pelepas by way of northern Asia and then back to the U.S. East Coast/North Europe via Suez, respectively.
   The group's intra-Asia specialist subsidiary MCC Singapore takes over any spare capacity on these ships in either direction between the limits of Japan and Southeast Asia. Its knowledge of local business practice and language skills are needed when competing with locally owned short sea lines in the same markets. Like Seago in Europe, it has also launched its own separate services with the dual aims of feeding for Maersk Line and making inroads on any opportunities to balance equipment flows and enter new local trades. It exchanges slots with other carriers like Evergreen and CMA CGM (whose intra-Asian subsidiary is called CNC). Of the 12 loops on which MCC provides ships, eight connect with Tanjung Pelepas.

Emma Maersk Loop Below Radar. Much of the MCC and Seago potential is below the radar. The AE10 loop, for instance, has 11 Maersk ships averaging 14,600 TEUs, including the eight Emma Maersk types. At 15,500 TEUs, these are still the largest container ships in the world. This loop loads in Guangyang, Ningbo, Yantian and Shanghai, for Tanjung Pelepas, before sailing non-stop to Rotterdam, Bremerhaven, Gdansk, Aahus and Gothenburg. Whatever volumes are loaded outbound in Tanjung Pelepas for North Europe (from Australia/New Zealand and Southeast Asia, etc.) will leave MCC an identical (ultra-low cost) capacity from Korea and China available to discharge there first. Similarly, the amount of capacity released in Rotterdam and Bremerhaven will be available for Seago to reload for Scandinavia and the Baltic.
   At least 36 loops call weekly in Tanjung Pelepas, including most of Maersk's and CMA CGM's larger ones. But if expressed in terms of 'spoke' calls arriving and departing, the number rises to around 60. Interestingly there is a growing distinction in the transpacific between those of Maersk's loops that are integrated with its hub-and-spoke network, and those that are not. Those that are include the TP3/TP9 and TP6/AE6 pendulums connected from the Pacific Northwest and Pacific Southwest via Tanjung Pelepas to the U.S. East Coast and Mediterranean. There are also three loops connecting Asia with Balboa, the AC2 and AC3, which remain on the Pacific side of Panama, and the TP7 all-water loop to the U.S. East Coast from Korea. On the return leg TP7 provides an express spoke from Balboa to Los Angeles en route to Taiwan. (AC2 and AC3 provide Balboa spokes directly to and from Japan, respectively.)

Non-hub Connections Downgraded. Obviously, not all Maersk's services lend themselves to integration with its global hub-and-spoke theme. It still wants to provide these connections with low slot costs, so this is where its vessel sharing agreements and slot charter partnerships have been coming to the fore. In addition to its extensive 'northern hemisphere' partnership with CMA CGM, three of its remaining four transpacific loops also involve MSC (TP2, TP5, TP8, and the TP1 is a slot swap with Evergreen, which in return takes space on TP5).
   A similar trend is evolving in the North Atlantic, although not yet with such big ships. Maersk has three North Europe loops providing spokes to Panama, one of which returns by way of Algeciras. From the U.S. East Coast it has four spokes to its Panama hubs and two to Algeciras. On its two non-hub transatlantic loops (TA2 and TA4) New World Alliance members APL and Hyundai variously partner. This matches the transatlantic slots Maersk takes on their APX loop, (which calls Balboa and Manzanillo after the U.S. East Coast).

Partnerships. Maersk Line's main partners around the world tend to be compartmentalized, rather like its own in-house organization. Hamburg S'd is a major partner in South America and Oceania, CMA CGM shares on many, but by no means all, its east/west northern hemisphere loops. MSC is a partner between the U.S. East Coast and South Africa, and from North Asia to Australia, (as well as now in the transpacific). However, MSC has withdrawn from direct trade between North America and Oceania and has shown restraint in not directly entering Asia to West Africa and Asia to East Coast South America. Evergreen Line dropped its round-the-world services and joined Maersk in building a parallel hub-and-spoke system of its own in Tanjung Pelepas, along with another mega-regional hub in Kaohsiung.
   A.P. Moller – Maersk has constantly outwitted and out-maneuvered its competitors in order to retain the upper hand and get where it is today. It has more ships and bigger ships. The unique world-spanning hub-and-spoke system in place seems to be putting it even further ahead of the field.

What Hub And Spoke Achieves. Consider again the giant ships of its AE10 loop, which we followed from Korean and China down to Tanjung Pelepas, providing low-cost intra-Asian space for MCC. Then, topped off in Tanjung Pelepas with relay cargo from Japan, Taiwan, Oceania and Southeast Asia, they head first for Rotterdam and Bremerhaven, and then, refilled by Seago, to Scandinavia.
   In the opposite direction, however, something quite different happens. After loading in Scandinavia for Bremerhaven and Rotterdam, the loop calls in Algeciras and then misses Tanjung Pelepas altogether. It sails non-stop to Yantian.
   The result is that Danish exporters get a fabulous low-cost Seago service to the North Continent and to all points in the Americas served by Maersk Line from Rotterdam. Then onwards to Algeciras, and not only Danish exporters but all European ones as well can use the same space for any destination in the Mediterranean, Africa or beyond connected via Maersk's hub in Algeciras. Finally, Maersk Line can use the same Algeciras hub in an inward direction to aggregate a full shipload of cargo outbound for China and Korea.
   Marketed correctly, what initially appears to be an end-to-end loop between Asia and Europe is in fact a Tanjung Pelepas/North Europe loop in one direction and an Algeciras/China/Korea one in the other. After forming a single giant Asian 'spoke' inwards to Maersk's hub at Tanjung Pelepas, the loop becomes an outgoing Tanjung Pelepas 'spoke' to North Europe and a secondary one to Scandinavia. On the way back it becomes a southbound 'spoke' into Algeciras and then an outward express spoke from Algeciras to China. On the strong leg westbound, goods from all over Asia are concentrated at Tanjung Pelepas for a non-stop voyage to North Europe. On the weaker, return leg eastbound, only a portion of the loop's space will be cargo returning from North Europe directly to Asia. Much of it will be used for exports to the Mediterranean and West Africa. Maersk can then scoop up exports from these regions to provide enough cargo for a non-stop voyage to China.
   Any profit achieved overall will be a joint effort involving MCC, Seago, and the system of ships, terminals and hubs conceived all along by Maersk Line.
   A generation ago Danish exporters were forced to pay conference lines a 'Scandinavian additional' freight charge because they were outside the Havre-Hamburg port range. Today, thanks to Maersk McKinney Moller, they have the largest containerships in the world calling directly at their door. ' Francis Phillips