Shipping companies have money. And they are using it. Few sectors have benefited so much from the supply problems that have turned world trade upside down since the outbreak of the pandemic. The high demand for goods —instead of services, more affected by the confinements—, the congestion in the ports and the delays in deliveries, increased the freight costs paid to carry products between countries and continents through the oceans, and those rates are still not normalized. With the congestion, the results grow, which were a record in 2021 and continued to be so in the first quarter of 2022. They are taking advantage of that mountain of cash to diversify their activity: they acquire logistics firms, buy planes and airlines and take over railway terminals and trucking companies.
The latest bell operation occurred just two weeks ago, with the entry of CMA-CGM into the capital of Air France. The third largest shipping company in the world, based in Marseille, will own 9% of the flagship airline of French aviation, and both companies will have a joint capacity of 10 cargo aircraft, to which will be added another 12 aircraft that are to arrive
The case highlights a qualitative leap in the strategy of the giants of the sea, which have set themselves the goal of offering their clients alternative services to maritime containers, highly exposed to delays and cost increases due to port closures in China, queues in ports of destination —especially in the US—, and the lack of truckers to move the goods once they are unloaded —also in Europe—.
A step similar to that of CMA-CGM is being attempted by the Italian-Swiss shipping company MSC. In alliance with the German airline Lufthansa, it launched an offer this month for ITA, the firm that emerged from the ashes of the evicted Alitalia, once the Italian flag carrier. If the acquisition goes ahead, both Air France and ITA would have at their helm companies that own container ships that until recently limited their activity almost exclusively to the seas, a paradigm shift in world transport that speaks of its growing economic power.
Another way of achieving the same goal is also observed in the sector. The largest shipping company in the world, the Danish Maersk, has chosen to alternate purchases with the path of organic growth, and will launch its own airline, Maersk Air Cargo, in the second half of the year, with 15 Boeing aircraft and another five orders. Earlier, in November, it acquired Senator International, a broker that helps clients book space on cargo planes.
Although the prices of maritime transport have risen a lot in recent months, air transport is still more expensive, but also faster. Sources from the sector explain that this is an advantage to move, for example, pharmaceutical products that are urgently needed – in the case of masks during the pandemic. Diego Perdones, CEO of Maersk for France, Iberia and the Maghreb, explains that air and sea complement each other. “Perhaps the start of a new clothing collection can travel by plane and the rest arrive by ship.”
He knows in depth all the sides of the coin.
Maersk’s logistics division now contributes 15% of revenue, but it is growing strongly -41% last year-, and the intention is that it represents a third of total turnover in the medium term. Via videoconference, from the company’s headquarters in Pozuelo de Alarcón (Madrid), Perdones explains that they are increasingly trying to take over the entire supply chain from end to end, that is, from the moment the product is loaded at a port until it is the client receives it, for which they have warehouses, railway terminals —in Spain they move about 150 freight trains a week— or delivery companies that allow them to compete directly with actors with whom they did not confront before, such as UPS or FedEx.
To understand the new muscle of the shipping companies, it is enough to take a look at their accounts. CMA-CGM obtained a profit of more than 16.7 billion euros in 2021, thanks to revenues of more than 52 billion. Maersk earned 15,796 million, its profit peak and six times more than a year earlier, and invoiced more than 54,000 million. That means that each one of them doubles the income of last year of Inditex, the largest fashion company in the world, and multiplies its profits by five.
A report by the consulting firm Alphaliner calculates that the 10 largest shipping companies together added a profit of more than 100,000 million euros in 2021. Collectively, they have made more money than Apple, the largest company on the planet, which amassed nearly $90 billion in profit last year.
Miquel Serracanta, director of the Master’s in supply chain of EAE Business School, attributes part of this success to a lack of competition. “Freight rates before the pandemic were very cheap. They have risen a lot because the shipping companies have increased their margins, and seven shipping companies account for 80% of the world’s freight rates. There is a lot of concentration”, he maintains.
The logistics expert points out that companies in the sector are taking advantage to reinvest profits and diversify their activity. “The container was until now a commodity. Where they gained more added value was in additional services such as customs, land transport, insurance, custody or distribution, for which the client paid. Seeing this, carriers are trying to integrate those services into their portfolio to get more margins,” he explains.
The trend continues in 2022
The war in Ukraine has posed problems. The entire sector has withdrawn its ships from Russia, and Maersk has moved the intercontinental train that used to cross the country to another route through Central Asia that connects with ships, but port closures in China and queues in those of the US maintain their rates very high, and 2022 may be even better. “From the moment that there are still port closure problems due to covid, the delays are going to continue,” says Perdones, from Maersk.
The manager believes that European infrastructures have worked well, but when a ship cannot pick up the scheduled merchandise in Shanghai due to the consequences of the strict zero covid policy imposed by the Chinese Government, the supply chain becomes chaotic. because everything is interconnected: other ships wait in Algeciras or Rotterdam to pick up goods brought by those from Shanghai, and the delays accumulate.
This is leading to a change in the way companies buy, as Perdones perceives. “They are considering a long-term supply. For many years they went to the market spot, that is, they reserved the space in the same week that they placed the order at whatever price it was. Now many want to ensure supply and price stability, which are not as low as before the pandemic.” To do this, they opt for longer-term contracts, oblivious to the ups and downs, and for ordering more quantity in advance, which does not help reduce maritime congestion.
Another trend that Perdones detects is that companies seek to diversify their supply sources. The confinements in China have exposed the risks of depending on a single country to receive the goods, which is why there is now talk of China+1, that is, continuing to be present in the Asian giant but producing a part in closer countries. Even if labor is more expensive, that economic damage is much less than what could potentially be caused by having the warehouse half empty because Chinese truckers and port workers are confined and cannot move goods. This process of relocation and shortening of supply chains is what some experts have called deglobalization.
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