Riding rough seas: World's largest shipping line banks on India for tech transformation

As trade disputes and economic uncertainty roil different sectors and countries, the global integrator of container logistics, A.P. Moller-Maersk, is looking at a digital transformation to ride the current state of flux.
Maersk is a shipping giant as its ships carry almost one-fifth of the world's containers and operates in 120 countries. In India, Maersk has about 29,000 customers, every one in five dry containers goes on a Maersk vessel and every one in four refrigerated container goes on a Maersk vessel.

However, despite the numbers, the company and the entire sector is the midst of significant headwinds across the world. The US-China trade war has dented confidence and trade data from Asia, Europe and the Americas show significant slowdown. With signs of another recession brewing in the US, the shipping giant is now looking at innovation and technology to provide some succor.

The entire shipping industry is a laggard when it comes to embracing technology. Maersk under its CEO Søren Skou, is particularly eager to embrace technology to power its business. In a recent conversation with Microsoft CEO, Satya Nadella, Skou says the, "Quest now is to digitize customer transactions, making it as simple to ship a container as it is to order airline ticket when you go online. That is actually a lot easier said than done because you need to standardize and do a lot of other things to enable a transaction online. "

Talking about Maersk's ongoing transformation on his recent visit to Maersk Global Service Centre in Bangalore, AP Moller-Maersk Executive Vice President Vincent Clerc said India has a significant role to play in Maersk's growth journey.

"India is central for us on two different levels. First, as one of the largest trading nations in the world we have a very large operation in India. We have had a very long presence in the country and have offered a wide range of services here. We have been the largest shipping line in India for many years, had terminal investments and have had the privilege of serving thousands of customers here both on imports, exports and bringing Indian products to the world and world products to India for a long time. That is continuing to grow in importance because India is becoming more and more a manufacturing powerhouse in the global economy with local champions like Reliance, Mahindra and many others that are actually taking an increasingly large footprint globally in markets like Latin America, Africa, Asia or even in the mature markets," said Clerc.

However, the second dimension, and visibly the more exciting one for Clerc, is its presence in Bangalore. Maersk says the quality of the talent that it can get in Bangalore could help in bringing a digital transformation. The idea is to apply new technologies to rejuvenating existing offerings, creating new products and services that we can be offered to customers.

"Potential is really around how much we dig into the creative energy that there is, especially in the Bangalore area. We are a relatively newcomer in this space. It is one of the biggest creative hubs globally and so far I think we have tapped it to the max so I would expect that we see some growth in our footprint in Bangalore," he added.

Last year, Maersk Global Service Centres inaugurated its new Centre of Excellence (CoE) in Bangalore. The new Capability Centre will support Maersk's global digital transformation by tapping local talent and partnering with the industry ecosystem.

IT clicks
Clerc says compared to some large digital native companies, the digital innovation has come a bit late to the shipping industry. "One of the reasons why this has been delayed in our sector is because the market has been extremely turbulent over the past decade and margins have been under pressure. May be too often the players in the industry have moved very cautious with a more short-term focus and not really have been able to both manage short-term and investing in the long term. The novelty of our approach here was the ability to reconcile the performance that we need to keep on delivering in the very competitive field with a view of the more long-term opportunity that we have," explains Clerc.

Also Read: Microsoft Joins Tech Race to Clean Up Shipping With Big Data

Clerc, however, is quick to add that it is not like the company or the sector has no technologies "Technology had come to the shipping industry a long time ago. Today Maersk.com is one of the largest B2B platforms globally so it is not like we don't have the technologies or we don't have track and trace or we don't interact digitally through APIs and EDIs with our customers. We do that a lot already," says Clerc.

To put it in perspective, Maersk.com is currently among the world's largest B2B transaction site with average hourly revenue of $1.3 million. About 98% of Maersk's 60,000 customers make their bookings through this site which is fast evolving into a one-stop-shop for digital solutions.

The real impact for Maersk is around redefining its role and what it can offer to its customer. It is abundantly clear Maersk merely does not want to be limited from shipping goods from one port to another. "Do you solve an ocean transportation need or do you simplify and connect the customer's supply chain? The way in which you define the problem will very much influence today the way in which you bring the answer to what you want to do and who you want to be as a company," says Clerc.

(Pic: Maersk)

Clerc believes in the enabling impact of technology today on supply chain and its ability to generate new efficiencies for its customers. There is the constant extension of our product portfolio to meet the increasing needs that our customers have in their supply chain. We will work on these, but technology is extremely important and all our colleagues in Bangalore are playing a big role in bringing about that. Our organization globally is really rallying around bringing this," says Clerc.

He adds that it is time for the company to revisit the policy where different aspects of supply-chain and logistics were handled by different business units and often in silos.

Choppy outlook
Business transformation for Maersk has come at a crucial time for the company when the economic scenario across the world looks very shaky. While the pie of global trade remains the same or even shrinks, the largest shipping liner in the world would want to grow its business. When other players join the clamor, large traditional businesses have to turn to technology to drive the next share of growth.

According to the OECD Economic Outlook the global expansion continues to lose momentum. Global growth is projected to ease further to 3.3% in 2019 and 3.4% in 2020, with downside risks continuing to build. Growth has been revised downwards in almost all G20 economies, with particularly large revisions in the euro area in both 2019 and 2020. "The slowdown in many key trading economies - such as Germany, China, the United Kingdom and Italy - is acting to weaken growth in their trading partners in Europe and in Asia given their importance as export markets and in regional supply chains," says OECD.


An optimistic Clerc, however, says some of the numbers that we are seeing right now is mostly driven through bad numbers in February out of the Far East because the Chinese New Year was celebrated in the beginning of February. "Once we you look at the quarter all together we will have a better trend that evens out these seasonal swings and we will get a better view of a picture on the macro basis that is not extremely healthy, but that it is not either something to be overly concerned about," says Clerc.

Maersk in February forecast 2019 profit below analysts' estimates and said the trade is in for a significant slowdown in 2019. Clerc explains, "We are of course vulnerable to certain shocks. If you have certain unexpected changes on trade wars or trade regulations or significant macroeconomic shifts, we are subject to a certain uncertainty. We know we have a very large uncertainty with the 2020 International Maritime Organization (IMO) regulations on fuel, which will already have an impact on the fourth quarter of this year as you really need to start executing on that switch."

In April 2018, the IMO agreed to its initial greenhouse gas (GHG) strategy, which aims to reduce the international shipping sector's GHG emissions at least 50 percent below 2008 levels by 2050. In line with the IMO strategy, last year the shipping giant announced its ambition to de-carbonize container transport by 2050.

This is another aspect that the company would be hoping to tackle through technology. Talking about the role of startups in finding solutions for green shipping, Clerc says, "Part of the solution can come from startups, but they do not have the ability to operate at scale. Startups could play a very interesting role in finding solutions in some of the fields such as trying to find formulas for fuels etc. It is also something that we are getting increasingly interested in. We will see a proliferation of startups in this field in the coming years," he said. Setup in 2018, Maersk already runs a large startup accelerator called OceanPro in Bangalore.