Recently the IMD President Jean-François Manzoni had a talk with Maersk CEO, Søren Skou on the future of the shipping industry and what lies of it as they battle the pandemic situation.
The leader of the world’s largest container shipping group predicts that trade will recover quickly to pre-pandemic levels and grow slowly but steadily thereafter.
Trade rebound estimated
Søren Skou, an IMD alumnus (MBA 1997) who now runs AP Moller-Maersk, said: “Our expectations on the other side of the pandemic continue to be that we will see global trade growing more or less in line with global GDP on average.”
- Although that is below rates before the 2008 financial crisis, it is in line with the 1-5% annual rises seen since and is significantly higher than many recent gloomy predictions.
- Global trade volumes fell by 15-20% in the second quarter, Mr Skou estimated.
Time to review supply chains
Denmark-based Maersk ships almost one in five containers worldwide and is seen as a bellwether for global trade.
However, Mr Skou warned that multinationals would now review their supply chains for greater resilience. “Distance was never an issue during the pandemic. The global transportation networks operated,” he told Jean-François Manzoni, President of IMD and Nestlé Chair Professor, in an interview on campus.
“We saw many of our customers experience that they had designed their supply chains too much for more efficiency and procured too much for low cost. A lot of companies found they had single source situations of often quite small parts. Not very important parts, so it was felt we could give the whole thing to one supplier. And it turned out that you still cannot finish your product if you don’t have that one part.”
Boosting stocks & inventory crucial
Mr Skou said improving resilience by boosting stocks and inventory was now paramount for multinationals. “Many companies did not have sufficient buffer stock to deal with disruption. And for that reason, they lost sales.”
Boosting resilience would not reverse years of globalisation and foster onshoring, but prompt more diversified sourcing, he predicted.
Regional consolidation a big risk
“I don’t think that consolidating production in your home countries will be an effective risk mitigation strategy, because the more you group things together geographically, the bigger the risk that something happens in that location. So my expectation would be that the pandemic will lead to more proliferation in supply chains and more multi-sourcing strategies.”
In his four years since taking over as CEO in 2016, Mr Skou has overseen a massive transformation of Maersk’s previously diversified portfolio to focus on shipping and logistics.
The restructuring, involving the disposal of Maersk’s energy and drilling activities, has included a sweeping digitisation of the business.
Virtual world shift enhancing efficiency
He said one surprise positive of COVID-19 had been to see the effectiveness of teleconferencing. The crisis had shown that “virtual” meetings could be more efficient than physical gatherings “especially when the agenda is clear.”
“We found we were able to work in a much more agile way, also with more trust between team members.”
Maersk has already introduced software allowing customers to seek shipping prices, book contracts and receive documentation online.
Digitizing & building in-house capacity
But those were just the start of what Mr Skou predicted would be a much wider transformation. “We are digitizing the way we run the company. We are digitizing all the machines we have in terms of ships, containers and ports. And we are building new products that are entirely digital which hopefully will drive new revenue streams.”
Contrary to the trend of outsourcing of recent years, Maersk had, however, decided to do more specialist work like coding internally. “Today we are basically bringing that capability back in-house because we want to, at least for the customer, differentiate stuff where we use technology. We want to be able to write our own code and be our own software company.”
Such changes would cut administrative costs, foster standardisation and improve ‘visibility’ for customers, he added.
With a much stronger balance sheet now, it would also help Maersk to “play offense” in future.
“We believe this is a true chance to reset our competitive position. We have preserved cash. We have a very strong balance sheet today. We have firepower to play offense. And, you know, use this opportunity to reset our competitive position, whether it is to recruit a lot of new people … or whether it’s because we have the cash to actually go out and buy that competitor and, or somebody with a set of capabilities and skills that we would like to import.
“So I suspect we will have a quite an active second half of 2020, playing offense”, he hinted.
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Source: IMD
