Moeller-Maersk – What does the crisis in the container shipment industry mean for your supply chain?
A.P. Moeller-Maersk is currently in the news as Maersk Line, the largest ocean freight carrier, recorded a 2016 revenue loss of $1.9 billion, down from a profit of $925 million in 2015 after a ‘difficult year’. This is Maersk’s second annual loss since 1945; the first occurred during the 2009 financial crisis. As a result, the head of the administrative board, Michael Pram Rasmussen handed in his resignation on February 8th after 18 years in the role.
The reason for the decline in sales is mainly the infraction of the freight rates, which in 2016 declined 19% from the previous year. While the freight rates put pressure on the container shipment industry, the branch is facing two other significant challenges: demand and supply imbalances leading to low freight rates and digitization.
Significance for the shipping container sector: the branch is under pressure!
Maersk’s financials show how much pressure the whole industry is under. As the global market leader Maersk should be able use its position to set prices for the entire sector, but if Moeller-Maersk is struggling how can smaller businesses stay afloat. Smaller shippers have the additional challenge of varying costs per transported container, whereas Maersk’s position as the market leader can negotiate better and more consistent rates.
The past five months have been difficult for the entire container shipping industry
- in September 2016 Hanjin Shipping has filed for bankruptcy after banks refused to maintain existing lines of the credit
- in October 2016 NYK, MOL and K-Line, the three largest container companies in Japan, agreed to unite their companies and establish a joint venture by July 1st, 2017 and begin joint operations by April 1st, 2018
- in November 2016 Hapag-Lloyd and United Arab Shipping Company (UASC) signed a contract to merge their businesses
Supply Chain Risk Management and Early Warning in the Spotlight
When the Hanjin insolvency was announced in September 2016, riskmethods customers monitoring Hanjin Shipping had received an early-warning signal that something was amiss months earlier. In April 2016 riskmethods notified customers that Hanjin applied to its creditors to restructure their debt, and that debt restructuring is often a strong early-warning signal that an organization is struggling to avoid insolvency proceedings.
Signals like debt restructuring, change in ownership structure, key employee stability and revenue performance do not necessarily have to result in a bankruptcy, but they often do, so it’s important to be prepared and save valuable time by designing alternative scenarios to mitigate the impact ahead of time.
The Risk Intelligence solution from riskmethods provides the information and signals you need to measure, monitor and react to the risks in your supply chain. Risk Intelligence delivers insights on current world events through active monitoring and integrates relevant third-party compliance and regulatory standards. Its finely tuned alerting engine means your organization will be amongst the first to know enabling you to react quicker to lock in supply and initiate remediation measures turning risk into a competitive advantage.
Risk Management is more than financial risk
The challenges facing shippers shows why most financial monitoring fails to predict supply chain disruptions; credit ratings do not provide a comprehensive risk profile and by the time a bankruptcy occurs, it is too late to prevent a disruption to your supply chain. It is critical to protect your supply chain by listening not only to signals of financial risk, but to every signal of risk facing your supply chain.
On February 22nd riskmethods is hosting a webinar on moving beyond finance-centric risk analysis, which will show how supply chains can avoid disruptions from shippers’ insolvency and other risks. We hope you can join us then, and in the meantime we will keep updating the blog with the most up to date information.