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An Analysis of the Strategic Responses by Maersk Line to the Slowdown in the Global Economy

AnAnalysis of the Strategic Responses by Maersk Line to the Slowdown inthe Global Economy

Abstract

Thispaper analyzes the way Maersk line responded to the economic slowdownof 2008. Faced with decreasing profits and an increasinglycompetitive market Maersk line responded by cutting jobs as well asreducing their cost of operations through slow steaming.

Introduction:

Theaim of this assessment is to examine how shipping companies haveresponded to the slowdown in the global economy since 2008. Inparticular the paper analysis how Maersk Line responded to the globaleconomic slowdown. The global economic slowdown is believed to havestarted in 2008 and ended in 2009 (Krugman, 2009). This slowdowncharacterized by decreased productive capacity, falling companyprofits, and an almost negative global economic growth was one of theworst global recessions since the great depression. This economicslowdown was preceded by the global financial crisis that hadspiralled into other sectors of the economy.

Thiswas all attributable to the sub-prime mortgage crisis in the UnitedStates that resulted in a cyclical spiral to other sectors of almostall world economies. This paper will start by analysing Maersk lineas a company and then investigate the specific means that the companyemployed in order to deal with the challenges posed by the slowingdown of the global economy. In the last section, the paper will tryto offer solutions and or recommendations that other companies withinand without the industry would have applied to deal with thechallenge of a slowing down global economy.

Brieflygive a profileof Maersk Line

Maerskline is the container division as well as the largest operating unitof the global conglomerate of A.P. Moller-Maersk group. The company’sheadquarters are in the Netherlands and the company is considered tobe the largest shipping company in the world in terms of revenue. Thecompany also employs more than 25,000 people in different countriesacross the globe.

Thecompany was founded in 1928 and has grown gradually in terms of sizeor number of vessels, revenue, employees, as well as profitability.The company is currently headed by Soren Skou and the company had anoperating revenue of around 26 billion dollars in 2011 making it theworld’s largest shipping line in terms of revenue. The companydeals mainly with the shipping of containers and by 2011, the companyhad more than 600 vessels that corresponded to more than 3.8 millionTEU (twenty-foot equivalent units). The company also operated thelargest container ship in the world by 2006 after the delivery ofEmma Maersk in 2006. In 2011, the company also ordered seven largercontainer ships from Daewoo.

Briefanalysis

Theslowing down of the global economy as a result of the financialcrisis had several impacts on different companies. These includedsluggish business, falling profits, losses, business collapse, aswell as mergers or acquisitions. As a result of these factors,different companies in different businesses took several steps orundertook various actions to prevent closure.

Themain ways that many companies took included cutting or downsizingoperations as well as employees. In particular, Maersk line adoptedvarious actions that included cancelling new ship orders, reducingstaff, closing branches, cutting capacity, and merging differentshipping routes. According to a 2008 report by A.P. Moller-MaerskGroup, the Europe-Asia shipping line and the pacific shipping linewere greatly affected by the slowing global economy and they were notperforming well.

Accordingto this, the company made the decision to close down one of its sixdata and file processing centres. The global service centre inGuangzhou would be closed down and the 700 employees will bedismissed or transferred to other workstations operated by thecompany.

Thecompany indicated in the years’ semi-annual financial report thatthe 2008 total freight volume for the half year was 6.2 million TEUthat represented a 4.1 percentage increase. However, the companynoted that this represented a 9% lower growth rate than the previousyear. The company also noted that this performance was below theindustry average of 7% growth. The company noted that in particular,the container business, the biggest contributor to the group facedincreased pressures due to increased oil prices, overcapacity, lowerfreight rates, and slowing global economic growth.

Thecompany also opted to introduce slow steaming to deal with aworsening economic climate. Slow steaming refers to the reduction ofsteaming speeds for company vessels. The main reasons for introducingslow steaming were to reduce fuel costs that had increaseddrastically in 2008 as well as reduce carbon dioxide emissions.According to the company, this move would also ensure enhanced safetyof the vessels as this would require constant maintenance andcheckups. According to the company, slow steaming would help toreduce the company’s operating costs and thus help to increaseprofitability that will assist in benchmarking the company againstthe bad economic times.

Anotheraction that the company undertook to perform in order to deal withthe worsening economic climate was the introduction of more efficientshipping vessels. The company has ordered several ‘Triple-E’vessels (Efficiency, Environment, and Economy of scale). The companynotes that these features of the new vessels will assist the companyin increasing capacity, reducing fuel consumption, reducing C02emissions, and increasing the efficirency of the company’scontainer division.

Inaddition, these vessels will offer a range of shipping servicesincluding dry cargo, reefer cargo, and special cargo services. Thesevessels will thus help

thecompany in achieving their restructuring programs that will help tomitigate the effects of the changing business climate as well as meetfuture company growth decisions or objectives.

Anotheraction that the company took was to seek partnerships with othershipping lines or merging certain operating divisions. For instancethe introduction of the ‘triple-E’ class of vessels was not onlyintended to help Maersk line but Maersk Sealand as well. MaerskSealand is a sister company of Maersk line because the two are ownedby the same conglomerate. However, Maersk Sealand specializes in thetransportation of containers from different locations in the world.

Conclusion

Maerskline is the largest shipping lines in the world. Because of this, thecompany was able to adopt various tasks to prevent it from sufferingimmensely from the effects of the financial crisis. As we have seen,the company adopted a number of initiatives that were soon copied byother players in the industry to deal with the problems. Theseincluded the reduction or downsizing of staff, introduction of ‘slowsteaming’, and the adoption of more efficient shipping vessels.These measures can be argued to have been effective because they ledto a turning around of company profits as well as having othercompanies adopt these measures as well.

Thecompany’s efforts have been adopted by other companies as well.However, the company should have considered using other means ofcost-cutting instead of laying off workers. For instance, the companycould have considered reducing salaries or having employees work inshifts in order to ensure that the employees do not lose theirlivelihood.

Listof references

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Krugman,P. (2009). &quotFighting off depression&quot. TheNew York Times.Retrieved from http://www.nytimes.com/2009/01/05/opinion/05krugman.html.

Marsoft.Containership Market Outlook. Marsoft, Singapore, September 2009.

Milne,Richard. Donnan, S. &amp Wigglesworth, Robin. Maersk calls bottom oftrade cycle. Thefinancial times. 2014.Web.&lthttp://www.ft.com/cms/s/0/14080c4a-26a5-11e3-9dc0- 00144feab7de.html#axzz2yq3621Cv&gt.

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