On this week’s episode of Fortune’s Leadership Next podcast, co-hosts Alan Murray and Ellen McGirt talk with Søren Skou, the CEO of Maersk, about the challenges to the global shipping industry amid the pandemic and the war in Ukraine. They also discuss why it’s so important for CEOs to do good for their employees and, really, all the world through their business decisions.
Transcript
Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations. Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray, and I’m here with my incomparable co-host, Ellen McGirt.
Ellen McGirt: Oh, I love this moment. It’s my favorite time of the week. We are going to have an amazing conversation today. We’re going to talk about an industry that’s essential to our lives but practically invisible. So much so that we might only think about it when something goes terribly wrong.
Murray: That’s right, Ellen. We’re going to talk about the shipping business with Søren Skou. He’s the CEO of Maersk. Maersk is a Danish shipping company that moves goods around the world, primarily by sea. A huge company, one of the two biggest in the business with about 17% of market share. And to your point Ellen, the world has been talking a lot about shipping lately since the pandemic because so many factors have, frankly, messed up supply chains messed up shipping lines made these jobs very, very difficult. And we’re going to talk to Soren about what Maersk is facing, how he’s navigating it and also about the climate challenge that he faces.
McGirt: This is a whole new world for me, a whole new area of inquiry, and I’m supply chain curious just like everybody else is in this changing new world, but I really am excited for this conversation.
Murray: That’s great to hear you say that Ellen, I’m pretty sure that 100 episodes ago, neither you nor I were excited about doing supply chain shows.
McGirt: And shame on me for that. You know, the other thing that I just want to say since we’re talking is that when you talk to a CEO who’s not a boldface name, you know someone who’s not grabbing the headlines on Twitter or wherever else, you get such a fascinating insight into their part of the world. And that it was a very powerful reminder for me that you know, someone who’s not making headlines all the time, doesn’t mean that they have tremendous influence on how the world really works.
Murray: And we’re really fortunate to have the CEO of either the largest or one of the largest global shipping companies Søren Skou with us. Is it number one or number two Soren? How do you view it?
Skou: I think my capacity there is somebody who does is marginally larger than we are.
Murray: Everything changes at the margins all the time. So we’re delighted to have you on board. I wonder if we could start with supply chain because this is something that no one ever wanted to think about or talk about. But all of a sudden it’s having such an enormous effect on everybody’s ability to get the things they want to live their lives. And, you know, with what’s happened in Russia and the Ukraine, what’s happening in Shanghai and throughout China just seems to keep going on and I wonder if there’s any blue skies in sight?
Skou: Well it’s certainly clear that the pandemic and all the things that have happened afterwards have really good global supply chains, global logistics chains, front and center for many, many businesses and what used to be discussed way down in the organization in logistics and procurement departments of the C-suite issues from both companies and all companies that trade globally. What we’re seeing coming out of the pandemic is our customers are thinking about how many suppliers they have, certainly where they’re located. They don’t want to get back to a situation where they only have one, one supplier of one small widget, which in itself may seem inconsequential, but you cannot finish your product without the widget and many people found out that they have the single supply situations. Our customers are thinking about inventory and how much they need to have many people have lost sales because they didn’t have enough inventory. So pretty much everybody these days have to think in terms of omni channel strategy, so they need to be able to fulfill goods both to physical stores, but certainly also to be to the end consumer that’s a huge challenge for any global supply chain and logistics chain and, and the relationships between logistics providers like ourselves and our customers have changed from being highly transactional to to being much more partnership and long-term oriented. So in the short term, we still are dealing with a lot of congestion, which makes global supply chains operate less than efficiently. If you look at the U.S., we still see very elevated congestion levels, certainly on the west coast, have come down slightly but not much. But also on the on the east coast and we’re seeing the same exam in Europe. So I think there’ll be a while before we have normalized, if you will, congestion levels important in the U.S.
McGirt: It will be worth you just taking a couple of minutes and explaining how global you actually are for anybody who’s not familiar with quite how big Maersk is.
Skou: Yeah, so Maersk is a global shipping and logistics company today. We did just over $60 billion of [inaudible] last year. We are present with our own people in around 130 countries and we we basically cover any any relevant market out there for customers. So those of our customers that are exporters, we basically make sure that they’re transported to any market that is relevant for our exporting customers and for those of our customers that are importers, many of our customers in the U.S. are importers, we enable them to source from most competitive vendors and suppliers around the world, no matter where they’re located. We have less than 1% of our turnover in our home country of Denmark. So, so a very, very international company by design.
Murray: And Soren, Maersk became a shipping giant in the era of globalization, increasing flows of trade all over the globe. We’ve seen some reversal or not reversal but slowdown of those trade flows in recent years. Obviously, what’s happened in Russia and Ukraine and the zero COVID policy in China and other geopolitical threats have caused people to have some second thoughts about globalization. Do you think globalization is going into reverse?
Skou: No, I don’t think so. But but it’s very clear that we we have shifted gear if you will. We had a long long period, basically from the middle of the 80s when China started to to open up until the financial crisis in 2008, 2009, where every year global trade was liberalized a little more, you know, more countries joined the WTO in China, more trade deals were done and that meant that for a long time, we saw global trade, growing two or three times global GDP growth, 5 6 to 10% per year global growth in global trade. Since the financial crisis, we’ve seen the global trade growing in line with global GDP, so 3 to 4%. They are no trade liberalisation anymore. There are still trade deals being done, particularly by the EU, with Japan and Canada, with long negotiations in Latin America with two countries. But we also see the U.S. have imposed tariffs on China and so there are things moving in both directions net net global trade is not liberalizing, but it’s not going in reverse either in our view. The benefits of global trade on wealth creation or job creation, consumption opportunities, they are so strong that we really don’t see much risk of [inaudible] reversal, but but not not much more expensive either.
McGirt: Being a global company, as Alan mentioned, just puts you in the center of so many big, big, big issues. But in January this year, you announced that you were going to get your operations will be carbon neutral by 2040 and you’re going to have your first carbon neutral vessel, I think out out on the waters next year. So this is where I make that how are you going to turn this ship around joke but it is a big, big big challenge.
Murray: It is such a big challenge. And we know the answer isn’t electric. It’s not going to be electric ships, you know, Tesla ships carrying containers around the world. So it’s a great question Ellen, how do you do it, Soren.
Skou: So in 2018, we set out a time to become carbon neutral, by 2050. At the time, we actually didn’t have much clue about how to do it. But we felt it was important to put out kind of like a moonshot goal because we were convinced that the world was moving into a climate crisis. And we also know that we burned a lot of fuel. In the four years after 2018 we have worked really hard to understand what’s the pathway and for us, we believe the pathway will be green fuels are also called e-fuels, but basically a fuel that we produce with a starting point in renewable energy. So we’ll take electricity that is produced by renewable power to use that electricity to split water H2O into the two component packs, H2 and O so the oxygen and H2 the hydrogen and the hydrogen we can reform to become either an alcohol that like methanol, or ammonia. And both of these thankfully, fuels can be used in a combustion engine. So this was a huge breakthrough in our thinking that actually, we can continue to operate ships with if you will, the old fashioned concept of the combustion engine. We just needed cleaner fuel.
Murray: And Soren, Maersk became a shipping giant in the era of globalization, increasing flows of trade all over the globe. We’ve seen some reversal or not reversal but slowdown of those trade flows in recent years. Obviously, what’s happened in Russia and Ukraine and the zero COVID policy in China and other geopolitical threats have caused people to have some second thoughts about globalization. Do you think globalization is going into reverse?
Skou: No, I don’t think so. But but it’s very clear that we we have shifted gear if you will. We had a long long period, basically from the middle of the 80s when China started to to open up until the financial crisis in 2008, 2009, where every year global trade was liberalized a little more, you know, more countries joined the WTO in China, more trade deals were done and that meant that for a long time, we saw global trade, growing two or three times global GDP growth, 5 6 to 10% per year global growth in global trade. Since the financial crisis, we’ve seen the global trade growing in line with global GDP, so 3 to 4%. They are no trade liberalisation anymore. There are still trade deals being done, particularly by the EU, with Japan and Canada, with long negotiations in Latin America with two countries. But we also see the U.S. have imposed tariffs on China and so there are things moving in both directions net net global trade is not liberalizing, but it’s not going in reverse either in our view. The benefits of global trade on wealth creation or job creation, consumption opportunities, they are so strong that we really don’t see much risk of [inaudible] reversal, but but not not much more expensive either.
McGirt: Being a global company, as Alan mentioned, just puts you in the center of so many big, big, big issues. But in January this year, you announced that you were going to get your operations will be carbon neutral by 2040 and you’re going to have your first carbon neutral vessel, I think out out on the waters next year. So this is where I make that how are you going to turn this ship around joke but it is a big, big big challenge.
Murray: It is such a big challenge. And we know the answer isn’t electric. It’s not going to be electric ships, you know, Tesla ships carrying containers around the world. So it’s a great question Ellen, how do you do it, Soren.
Skou: So in 2018, we set out a time to become carbon neutral, by 2050. At the time, we actually didn’t have much clue about how to do it. But we felt it was important to put out kind of like a moonshot goal because we were convinced that the world was moving into a climate crisis. And we also know that we burned a lot of fuel. In the four years after 2018 we have worked really hard to understand what’s the pathway and for us, we believe the pathway will be green fuels are also called e-fuels, but basically a fuel that we produce with a starting point in renewable energy. So we’ll take electricity that is produced by renewable power to use that electricity to split water H2O into the two component packs, H2 and O so the oxygen and H2 the hydrogen and the hydrogen we can reform to become either an alcohol that like methanol, or ammonia. And both of these thankfully, fuels can be used in a combustion engine. So this was a huge breakthrough in our thinking that actually, we can continue to operate ships with if you will, the old fashioned concept of the combustion engine. We just needed cleaner fuel.
Skou: In a typical market, the freight rate on a contract basis will be somewhere in the 3 to 3 and a half thousand dollars from Asia to North America. So it’s a fairly large percentage. But inside the container of a 40 foot container, there will be 8000 pair of sneakers. So $800 on 1000 pair of sneakers that’s 10 cents per pair of sneakers. So if you take that and look at the 20 year horizon, I think we will be able to manage the inflationary impacts.
Murray: I’m here with Joe Ucuzoglu, the CEO of Deloitte U.S. and the sponsor of this podcast for all three of its seasons. Thank you for that, Joe.
Joe Ucuzoglu: Pleasure to be here, Alan.
Murray: Joe, business is facing so many challenges these days,: the continued pandemic, the battle for talent, supply chain problems, rising inflation, and now on top of all of that war in Europe. How are companies responding to all this disruption?
Ucuzoglu: Alan, you’re seeing a remarkable level of optimism in the face of so many very challenges. And by and large, I’d attribute that to a recognition that this is just the new normal, the constant curveballs that will be thrown at us but at the same time, given how successfully so many of these organizations have navigated through these things over the past couple of years of growing confidence that we’ll be able to continue to navigate the issues that get thrown at us and grow our businesses. But to do that, we are absolutely seeing a new brand of leadership emerge grounded in resilience, in agility, in a learning mindset. These are the most important leadership attributes in an environment where we should just expect the change and disruption are going to be at a consistently high level of intensity.
Murray: The problems aren’t going away, Joe, you have to manage through them.
Ucuzoglu: I had a CEO say to me recently that if you put together a list of the top 20 risks one week, something big is going to hit the next week, and it probably isn’t even on that list. And that’s just a reflection of the number of different phenomena in the world right now and the level of complexity that businesses are managing through.
Murray: Joe, thank you.
Ucuzoglu: Alan, it’s a real pleasure.
McGirt: I want to switch gears a little bit and talk about Russia. You withdrew from Russia in early May by selling your stake in global ports. And I was wondering if you could walk us through that decision: how you balance the trade offs and what you thought the outcome was going to be, and why you did it.
Skou: Russia invaded Ukraine on the 24th of February this year, and maybe it shouldn’t have come as a shock but it did to all of us and we woke up the next day realizing we have a land war in Europe going on and it’s only 1200 kilometers from Copenhagen, where I live. You know, in my management team, we we got together on a Sunday said can we continue to serve Russia? And then I think by by end of Monday, we had come to the conclusion that we could not and because we really felt that if we protect business as usual, if we do not react to this basically with them, we will just keep Russia the impression that they can do whatever they want and the next, the next you know two years from now, it will be the Baltic states so it would be Poland or whatever. So we felt we had to do what we could do. And that was basically stop serving Russia. So we we said I think Monday or Tuesday after Thursday, a nation that was suspending our coverage of Russia and then a couple of weeks later, since this was not a short term thing clearly, we said we’re leaving. So we have stopped serving Russia and now we are selling the the assets we have in Russia. We took a $700 million write down in connection with our first quarter because for us this is this is not about making money. It’s about doing the right thing. We simply cannot condone what’s going on.
Murray: Kudos to you for taking that tough decision. But it really illustrates what we talk about on this podcast. Something very different is going on in the world of business a decade ago, companies didn’t make geopolitical decisions. They didn’t make climate decisions. They thought that’s the government’s job. I mean, you had to pull back from Iran, but only after the sanctions were were put into place. So how do you view the change where you’re expected to be proactive on climate on geopolitics on a host of other issues?
Skou: Well, I mean, I think it’s certainly true to say that that society today have expect businesses and CEOs in large public companies to have a view on other things that won’t be a result, and also to be a role model in many areas. Not only the public expects that, but also our own colleagues, our own employees expect us to to to be on the right side of most, most issues, I think for us in most confer many on us companies today, we see ourselves as being a purpose driven company and purpose driven companies. They create values, value, of course for their shareholders, but also for their customers, also for their employees, and certainly also for the societies that they’re part of. And I think this whole pandemic has been a huge illustration of the [inaudible]. I mean, lots of photos have been on governments and how they’ve handled the pandemic. But in my humble view, we would never have done as well as we have with a pandemic, if it wasn’t for the engagement of all the companies. I mean, starting of course with the private companies that came up with the vaccine, our contribution of course, mainly around logistics and keeping global supply chains running, despite all the knock downs and I think that we will only be expected to do more in the future.
McGirt: Soren to build on that I want to mention that human rights issues again, which are really serious and I know that for the average person when they think about shipping they always think about a scene in a movie where the crime fighter wakes up on a shipping container and the mariners there it just gives gives her a bowl of chili and doesn’t really know what to do that there’s that that’s the drama that’s happening in our collective imagination. But the truth is the mariner has a huge role to play in cybersecurity, but now also when thinking about human rights and trafficking and exploited fishermen and all that kind of stuff, all the modern versions of slavery, which remain hidden from public view. I know you have made a strong statement on this, but I was wondering if you think you had a leadership role to play within the industry in addressing some of these, these really big and very serious issues.
Skou: As far as the people that we actually employ at sea and anywhere I mean, we want to, obviously a good corporate citizen, we want to make sure people have a living wage that they can that they can have a life. One of the things that I always say to them, people that work for us 40 hours a week, they should be able to have a life, no matter where in the world, they should never have to look for a second job or anything like that. That’s just, that’s just crazy. And it’s our responsibility to make sure that we train them we develop them to educate and go on to be the best that they can possibly be. And once you know as our business expands further, further ashore, we get more and more into our warehousing, logistics, you know, we’re going to be have to work more and more diligently with these issues because people that are on board ships, for instance, are very, it’s relatively easy for us to control who are there, and who are not there but people working in warehouses and particularly if they are employed by asked us to contract, it gets quickly quite complicated. So so that’s really what we need to work on the coming coming. years to make sure that we always pay a living wage also to people that work for us through a contractor.
Murray: So someone explained how, when you’re in such a globally consider a purpose driven company, you’re making significant investments to address the climate issue. You are trying to do the right thing by your own employees. But even though you’re one of the top two companies, you’re probably what less than 20% of global shipping? And so what happens if somebody comes along and says hey, this is an opportunity for me to use the cheapest fuel and and the cheapest labor and give a lower price then Maersk is giving and take over shipping. How do you deal with the free riders, the people who don’t care about the climate and don’t care about the welfare of the communities that they’re serving?
Skou: I mean, there will always be people that think like that, and there will also always be a certain customer segment who will only care about the price. But my experience today is actually that you know, there are plenty of customers out there for us to go to the people that want to make sure that they are dealing with suppliers vendors that do the right thing. I mean, if you own a big global brand, and you buy shipping services from somebody who’s employing child labor or whatever, you know, sooner or later that’s going to come back and haunt you, if you say one thing in your in your marketing and you do something completely different downstream. You know, sooner or later that will come to the come to the surface. We touched upon the Russian invasion in Ukraine. I think it’s now more than a dozen companies that are on this list that the Yale University is publishing about people. These are all companies like our own. They have self sanctions. I mean, this is not governments. We are self sanctioning. We’re saying we just don’t want to have anything to do with it. You know, this is not about money. This is about doing the right thing.
McGirt: Talk about cybersecurity. I think it’s super important. Literally the dark the dark story is from 2017 when Maersk was hit by an unintentional cyber attack it when it came from Russia, it was designed to attack Ukraine, but you were not the target but you certainly had to deal with it. What have you learned from that incident and how are you thinking about the human side of cybersecurity?
Skou: Yeah, I think we of course, the first thing we learned was that we were not nearly as well protected against cyber attacks as we thought we were.We checked all the boxes, we have the organization structure and so on. But clearly we did not understand our vulnerabilities. And I think we are in a much better situation today really invested more than $300 million since then in building up our cyber standards and we have today cyber cyber team of more than two other people. So three learnings. First of all, any company has to build its defenses as high as it possibly can. Secondly, you know, the most important is to be able to stop a cyber attack in its tracks. I mean, because you will be hit and they will be successful. Our problem was not really that we got hit in Ukraine. Our problem was that it spread globally. If we had contained it to Ukraine nobody would ever and then and then third part third thing is that any company can be good. We’ve also spent a lot of time and effort on how can we rebuild much faster than we could back in 2017. Then we still have the risk that somebody will bribe somebody who actually works for us to circumvent you know, so so that’s why we need to be able to read this is gonna be an ongoing issue for all.
Skou: Not far. I’d say within the five years. We have invested a lot in digital in the last two to three decades. And I think we’re getting closer to the point where you will be able to get a customer experience that’s not dissimilar from what you see your UPS or FedEx or whatever.
Murray: Look forward to it.
McGirt: Just real quick before we let you go. This has been a wonderful conversation. We’ve been asking all our guests this season for three quick top of mind reactions to three really important issues. First, what’s top of mind for you when you think about COVID?
Skou: I think the extraordinary response from from from from businesses in tackling this challenge gives me a lot of hope. I mean, up for the human rights.
McGirt: Yes, I agree. I agree top of mind for you when you think about the global economy.
Skou: I think we’ve going into a period where it will be slow, slowing down. And we’re going to have to deal with new things, such as inflation, and many of us have come take down economics textbooks, from the 80s, to figure out how it was to, to live in a world where, where where you have real inflation’s we have to learn to live with this.
McGirt: And finally top of mind for you when you think about what’s next for you as a leader.
Skou: As a leader and as a CEO, I’m going to be spending the next couple of years really talking about the purpose. What the pandemic taught me was the importance of purpose and values and how how much a global organization can achieve if having a clear understanding of what that purpose is and what the values are. Very early in the pandemic. We said no we’re not going to revise our pockets. We’re not going to change our financial incentives. We’re not going to fire people. What we’re going to do is to say three things. We want you to protect our people, serve our customers and help the societies we are part of fight. The results of that from them has just been amazing, not just financially, but also in terms of engagement in terms of customer satisfaction, and all the other parameters we look at when we look for leading indicators of how the businesses do.
Murray: Yeah, it’s such a perfect end to this conversation, because people need to understand that, that when you talk about being a purpose driven company, it’s not just because you’re a good guy. I assume I take it you’re a good guy. But it’s not just because you’re a good guy. It’s because in today’s world, that’s the way to run a successful business.
Skou: That’s how to attract people that sounds from who your customers. That’s everything. Thanks so much. Thank you. Thanks for having me.
Murray: Shortly after we recorded this interview with Soren Skou, news broke that two women from the U.S. Merchant Marine Academy had filed separate civil lawsuits suing Maersk both say they were sexually assaulted while on board Maersk and that the company did not have adequate safeguards in place to protect them. In response, Maersk provided us with the following comment, quote, We are deeply touched by the cases that have come up. We need to put an end to this unacceptable behavior and get to the bottom of the problem. When the case came up. Last year, we started talking to all our female sailors to get their first hand accounts of the culture on the ships. The interview showed that a comprehensive cultural change is needed. We are working on this which is why we have for example, set up a team that only works with this and we will continue to do so. It is absolutely crucial for everyone on AP Moeller Maersk that we have a safe supportive and welcoming environment on our ships and in our company as a whole. The personal cases that are pending we cannot comment on.
Leadership Next is edited by Nicole Vergalla, written by me, Alan Murray, along with my amazing colleagues, Ellen McGirt and Megan Arnold. Our theme is by Jason Snell. Executive producers are Mason Cohn and Megan Arnold. Leadership Next is a production of Fortune Media. Leadership Next episodes are produced by Fortune‘s editorial team.
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