Maersk strategic expansion shows that other service providers are crowded out the in logistics supply chain, especially the freight forwarding industry.

07 Jan 2022

By Arthur Chen     Photo by Johan Taljaard 

If giant shipping companies monopolize the logistics supply chain, they may barely provide enough services to the world's large cargo owners, at the expense of most small and medium cargo owners and logistics providers.

For a long time, freight forwarders have been skeptical of Maersk's business strategy to become a global container logistics integrator, because this will make Maersk a direct competitor of freight forwarders, trucks, warehouses, and even customs brokers. In mid-December, rumors spread in the freight market that Maersk and its subsidiary Hamburg Süd planned to skip its freight forwarders from January 1st and directly trade with cargo owners. It has recently been reported that Maersk has taken action to appease freight forwarders who worry that their business will no longer be accepted from January 1st. According to market rumors, the world's largest ocean carrier plans to abandon some of the "Name account" contracts with freight forwarders, and instead trade directly with cargo owners. "Name account" refers to the contracts in which the freight forwarder discloses the identity of the customers to the shipping lines to obtain the discount rate applicable to such clients. The reduction in "Name account" contracts will force these freight forwarders and their customers to enter the real-time market. Compared with before the outbreak in 2019, the current freight rates on trans-Pacific and Asia-Europe trade routes are almost 9 times higher. Ironically, Maersk said in a statement in Dec that the tradition of cooperating with freight forwarders will continue, and freight forwarder business is one of the largest customer group. The statement is a direct response to the concerns expressed by freight forwarders.

However, the European Association of Freight, Transport, Logistics and Customs Services (CLECAT) is very worried about Maersk’s strategic expansion. They announced that they will stop services from Maersk’s contracts with certain freight forwarders to support direct shippers and investigate whether they violate EU competition laws. . Nicolette van der Jagt, the general manager of CLECAT, pointed out that - “Maersk’s direct provision of integrated services to shippers is not new. This is a business decision chosen by Maersk. But this recent development is clearly an attempt to marginalize freight forwarding. According to Maersk It’s strategic intention that unless freight forwarders venture into the unfavorable real-time market, they will not be able to obtain space for cargo in the new policy. We are reviewing whether this move is in compliance with EU competition law." 

However, Maersk bluntly pointed out that the demand for “Maersk Spot” is growing rapidly, which shows that the market believes that the platform is a more efficient way than currently used. Maersk Spot is an online platform for freight forwarders that provides real-time quotes and reservations. He also said that the traditional contract model with freight forwarders has been plagued by a series of inefficiencies for many years. Insisting that “Maersk Spot” is a modern and digital business model that provides their freight customers with a very effective way of doing business. The overall impression they get from customer feedback is that customers who use the Maersk Spot platform enjoy very high customer satisfaction.

In addition, Maersk is not the only large shipping line hoping to develop its non-maritime business. Throughout 2021, CMA CGM and MSC also spent billions of dollars on acquisitions to improve end-to-end logistics capabilities in Europe, Asia and the Americas. MSC made a US$6.4 billion acquisition offer for the African logistics business of the French Bolloré Group. In addition, an offer to acquire a 67% stake in the Brazilian shipping company Log-In Logistica for US$500 million was also accepted by the company’s board of directors on Wednesday. Maersk acquired Li & Fung Logistics' ICL division for US$3.6 billion. This move will greatly enhance Maersk's capabilities in the fast-growing Asian e-commerce and contract logistics market. CMA CGM acquired 100% of the FMS container terminal at the Port of Los Angeles for US$3.2 billion in early November and expanded its stake in several MSC terminals. CMA ordered four new A350 freighters in November, while Maersk acquired air freight forwarding specialist Senator International and five freighters for US$1 billion, which highlights the importance of air freight in integrated logistics products.

Although there are obvious differences in the practices of these three shipping lines, the overall strategies are similar. CLECAT is not convinced of the integrated route followed by some major shipping lines, and warned that if the entire logistic supply chain is left to a few giant companies, the potential consequences of the market may be serious monopolies. If control is in the hands of a few companies, what will happen to prices and reliability? This should be a warning signal to the European Commission! The most worrying thing is that if the logistics supply chain is completely monopolized by these giant shipping companies in the world, small and medium-sized customers and logistics suppliers will increasingly lose bargaining space and service quality. Shipping lines will only afford focus on serving large-scale cargo owners around the world, and the result will be to narrow down the living space of small and medium-sized companies. Trade fairness and anti-monopoly have always been an important foundation for global trade freedom. Seeing that the strategic attempts of these large European shipping lines clearly monopolize the market direction, the EU should pay more attention to their crowding out effect on other service providers in the logistics supply chain!

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