“The future of trade depends on infrastructure construction.” On November 20, Vincent Clerc, CEO of Maersk, stated at the grand opening ceremony of Maersk’s Lingang integrated logistics flagship warehouse that the current growth rate of global trade volume exceeds the economic growth rate. Last year, global container shipping demand increased by approximately 7% year-on-year, and this year’s growth rate is expected to be 4%, demonstrating the resilience of trade.
To break free from the strong cyclical nature of traditional shipping business, Maersk has accelerated the integration of logistics and terminal operations since 2017, transforming towards end-to-end, multi-channel integrated logistics. In the third quarter of this year, Maersk achieved revenue of $14.2 billion, a year-on-year decrease of 9.9%, mainly dragged down by the Ocean segment. Although the company’s ocean freight volume increased by 7% year-on-year, ocean revenue decreased by 18% year-on-year due to a sharp 31% drop in freight rates.
Some analysts predicted during the earnings call that many liner companies would fall into quarterly losses next year. Vincent Clerc also expressed a clear stance on the resumption of Red Sea shipping, stating that they are closely monitoring the situation in Gaza. Although the timing is still uncertain, the prospects for the return of Red Sea routes are gradually becoming clearer.
Against the backdrop of the downturn in ocean shipping, Maersk’s Logistics & Services segment revenue increased, and its EBIT margin also grew to 5.5%, having a positive effect on performance correction. In this regard, Maersk specifically mentioned the contribution of the warehousing business in its financial report. Vincent Clerc stated during the earnings call that the profit improvement in the logistics business mainly comes from the company’s efforts in cost control and productivity enhancement, and the seasonal improvement in this business will be more evident towards the end of the year.
According to the aforementioned financial report, within Maersk’s Logistics & Services segment, the refocused fulfilment services revenue increased by 2.9% year-on-year to $1.456 billion, and the EBIT margin improved from -4.5% to -0.9%, primarily driven by middle-mile transportation, warehousing, and e-commerce fulfilment businesses.
“The opening of the Lingang flagship warehouse is an important milestone for the implementation of Maersk’s integrated logistics strategy in China,” said Vincent Clerc. This logistics center is located within the Yangshan Special Comprehensive Bonded Zone and is applying for a classified supervision policy. It will enable the co-location of bonded and non-bonded goods in the same warehouse to enhance Maersk’s omnichannel international fulfilment service capabilities and further connect China with the global market.
With an investment of over 1 billion RMB, the Lingang flagship warehouse is Maersk Group’s first and currently only mega strategic investment project globally that has been deeply involved from land purchase and design to construction and operation. After two years, a storage space of 147,000 square meters has been completed, equivalent to a vessel carrying over 6,000 TEUs. In the view of Lin Sen, General Manager of Maersk Contract Logistics Operations, Maersk’s choice of heavy asset investment is based on considerations of controlling resources, service synergy, and low-carbon transformation.
Lin Sen told reporters that since the trial operation began in early October, seven companies have signed contracts. Although there are certain fixed cost risks in the initial stage of the project investment, in the long run, the four major solutions will drive scale effects and create new business opportunities.
So, how will this largest warehousing investment project in China by Maersk achieve its profit targets in terms of cost control and productivity improvement? Lin Sen believes that the one automated warehouse is an exploration by Maersk into fully automated warehouse operations. If the proof of concept is successful, it can be promoted in global warehouse projects. The four ramp-supported warehouses have a clear height of 12 meters; increased space utilization will lower unit costs. They also have automation potential if needed in the future. Furthermore, compared to elevators, the ramp design is more efficient, contributing to performance improvement.
Additionally, the integration of domestic and foreign trade in warehousing will be a major trend in shipping logistics development. Ding Zejuan, President of Maersk Greater China, told reporters that currently, China’s international trade is gradually evolving from being primarily export-driven to a diversified combination of exports, imports, and transshipments. More and more brands hope to manage various international trade needs through a “single inventory” model.
“We anticipate that the global trade landscape will become increasingly complex with more disruptions. Therefore, Maersk’s strategic transformation is centered on ocean shipping, coordinated with terminal operations, and coordinated with logistics to serve customers,” said Ding Zejuan.
From a liner company to a logistics company, Maersk has made frequent acquisitions over the past two decades. Now, Ding Zejuan believes that in Greater China, Maersk has acquired sea, land, and air transport modes and integrated logistics service capabilities, and has begun transitioning from focusing on capacity expansion to pursuing quality improvement. As the shipping industry moves towards alliance formation, fleet size is no longer the most decisive factor. She believes that improving schedule reliability, building end-to-end capabilities, driving digital transformation, and executing decarbonization goals are the four dimensions for unlocking logistics nodes.
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