The new Damco looks to expand global coverage

The merger of AP Moller-Maersk’s disparate logistics and forwarding assets under the Damco moniker does not pose any imminent threat to the global standing of the likes of Schenker or DHL.

Despite boasting some 10,000 employees and revenue last year of US$2.8bn, the new Damco is still too small and its footprint too faint. At least for now.

But, by bringing together the forwarding know-how of the original Damco and the supply chain assets and client-base of Maersk Logistics, it marks a major strategic about-turn by one of the world’s leading shipping groups. And, claim managers, it is a change in direction fuelled by ambition, not desperation.

Rolf Habben-Jansen, a former high flyer at DHL who was appointed CEO of Damco in January, says the merger is part of a long-term strategy to build a serious provider of global transport solutions.

It is not, he emphasises, a forerunner to a cash-raising sale of the business to shore up its loss-making parent group.

"There were a lot of rumours about this, " he says. "We are not up for sale, and the group has no intention of doing anything in that direction in the next couple of years.

"We heard we were linked with Kuehne + Nagel (KN), but we’re just getting on with business."

In fact, the creation of the new Copenhagen-based Damco was no recessiondriven snap decision. The plan was hatched as early as 2007 and the two divisions have been effectively functioning as one operation since the first quarter.

The rebranding now, says HabbenJansen, is in fact the final act, designed to clarify to the market that there is clear blue water separating the group’s shipping operations under Maersk Line and its logistics business. This was a necessary step, he admits.

The industry perception of Maersk Logistics was not always positive - viewed by many as a feeder division for its powerful boxship sister company, it was often derided as an ocean freight specialist that was unable to deliver competitive rates.

Industry-wide acceptance remained elusive and, after a bright start back in 2000, it was quickly caught up and then left behind by today’s supply chain market leaders.

"It was decided in 2007 that Maersk Logistics needed to become more independent from the group, " he explains.

"Logistics is very asset-light, while Maersk Line is capital intensive. They’re very different business models that are hard to manage from within one organisation.

"Maersk Logistics had a good reputation on delivery, but some did associate it with higher costs. But neither Maersk Logistics nor Damco had a clear identity outside their traditional customer bases.

"Once the decision to separate was made, we decided that sticking with the Maersk name would make it hard for us to get an identity separate from the shipping line. Customers would ask what the difference was.

"The logical last step was to trade under one brand to reduce costs and complexity and we went for Damco."

The break from Maersk Line is, he insists, not only a clean one, but already wellestablished. Over the last two years the percentage of Maersk Logistics/Damco ocean freight shipments (587,000teu in 2008) carried by Maersk Line fell to below 50%, and Habben-Jansen expects it to fall further in the years to come.

"We’re independent. We do not have any group obligation to move with Maersk Line, " he says. "We will still carry a big chunk on Maersk Line, but like any other forwarder we will look at the options we have, then take a decision. In lots of cases we’ll be using more than one carrier."

Forward strategy, he says, will firstly focus on persuading existing customers to hand over more of their logistics and forwarding requirements. This "leveraging" strategy has proven hugely successful for KN and its ilk, and Habben-Jansen sees to no shame in aping the market leaders.

"We look very actively at what our competitors are doing, " he says. "We always compare our results with theirs, look at the differences and see where we can position ourselves in the market. There are places where we are different to those guys. There are still niches and opportunities for us.

"I think leveraging is one of the things we can do more. If you look at the penetration we have with our customers, and compare it with the customers of competitors, there is upward potential for us."

Maersk Logistics’ strength in retail markets will be used as a springboard for winning more FMCG contracts. The lifestyle, apparel, technology and project sectors are also on Damco’s radar.

Habben-Jansen also wants to build on the company’s healthy position in emerging markets to expand its global footprint, both in terms of geographic reach and modal capability. For a group so strongly associated with the ocean liner business, developing better air freight capability will be critical.

"We are still relatively small despite being global, " he says. "We have a good footprint in China, Indonesia, and we’re probably number one or two for ocean freight in India. But we do need to improve our air freight reach.

"We are currently looking at how to develop this business over the next two years, but we need a more mature offering than we have now."

The strategy will involve the identification of 10-15 core countries with strong air trade lanes. This will focus on Damco’s strength in Asia, which will be linked to four or five airports in the US. Panama and Dubai will be used as sea-air hubs and four airports will be designated air freight centres in Europe.

"We’ll be finalising our plans towards the end of September and then we’ll build that product up over the next 24-36 months launching January 2010."

In an already crowded market, characterised by falling volumes and operating margins, is there really space for Damco to grow in the midst of a downturn?

Habben-Jansen believes so.

"Yes, there’s space. We have quite a strong customer base for ocean and supply chain products. Many of these customers need to decide between air or ocean on a daily basis. I think if we want to become more important in the logistics industry we need more air freight credibility.