Abstract
Global market operations require that a multinational organization considers policy structures that prove effective in the management of its global operations. An examination worldwide operation of Maersk Line in 135 countries around the world reveals that the company has employed investments in innovation and capacity building as the main driver of its supply chain components. Based on this six operational areas that encompass; customers, competition, operational costs, communication, technology and environmental pollution the paper investigates the efforts made by the management at Maersk Line in effectively running its supply chain worldwide. The paper finds that several challenges and opportunities are characteristic of the shipping industry; although investments in capacity development and innovation serve to be the best approach the Maersk Line adopted which makes it a market leader in the shipping industry.
Background of Maersk Line
Maersk Line is a cargo shipping company owned by the A.P. Moller group with activities in various business sectors that are primarily engaged in the transportation of goods from one port to another in 135 countries worldwide. However, the company also runs other businesses off shore such as oil drilling. The headquarters of A.P. Moller – Maersk Line is based in Copenhagen, Denmark controlling operations of its branches in the 135 countries it has established networks with Worldwide. The company employs one hundred and eight thousand employees all over the world. Additionally, it was ranked 147th Fortune Global 500 Company in 2010. Maersk Line has consistently held the record of being the largest shipping company in the world since 1996 (Ndikom, 2012).
The year 2012 saw Maersk Line acknowledged for being the largest global network owing to its global coverage. It was also recognized to have modern facilities with most of its container vessels averaging the age of eight years in comparison to its competitor’s that averaged twelve to fifteen years. This modernization allowed for increased amounts of specialized and sensitive cargo carriages giving the company and edge over its’ competition.
Maersk Line clients are as differentiated as the goods that they deliver worldwide from Walmart, Nike, and Tesco. and this requires that the worldwide network be run by Maersk partners in locations where it is impossible for Maersk to handle all operations. Hence, it employs the aid of freight forwarders who may be considered as a direct customer, supplier or at times competitors for Maersk Line transportation services (Reinhardt, Casadesus-Masanell, & Nellemenn, 2012).
Components of Maersk Line Supply Chain
Customers
The customers form the most essential component of the distribution chain for Maersk Line. They range from smaller customers who place delivery orders of single containers to large scale customers who order goods worth an entire ship’s capacity. Maersk Line though a leader in the industry at times has to compromise in charging customers for transportation of goods by offering competitive rates in countering competitors’ moves to snatch customers away. In this regard Maersk Line issues discounts on large scale shipments (Reinhardt, Casadesus-Masanell, & Nellemenn, 2012).
The main challenge in this regard is the fact that most customers’ opt to enter into contracts with shipping companies, but are unwilling to place in excess of 40% of their total transportation of goods services on one company. The main reason for this is to ensure that there is price competition among shipping companies as well as to ensure higher frequency of sailings and choice. For this reason, Maersk has to develop partnerships with other companies and partners in creating a leaner and more agile supply chain.
Competition
The industry is characterized by price wars with customers ever focused on contract bidding for the most competitive price in the shipping industry. Maersk Line is continuously marred with the challenge of matching demand with supply where various market conditions may present logistical challenges owing to the trends in the market place. As a consequence in 2009 the projected increase in demand for cargo transportation prompted Maersk Line to make orders for more containers but the extra capacity proved unsustainable when market demand soon plummeted. To handle these uncertainties effectively, the management at Maersk is committed to market research to provide evidence of projections of market performances so as to make appropriate decisions on its investments (Reinhardt, Casadesus-Masanell, & Nellemenn, 2012).
Cost of Operation
The major costs incurred by Maersk include terminal costs, vessel costs and fuel costs. These serve to be very central in determining the viability and profitability of a shipping expedition in the supply chain. Terminal costs prove detrimental to the profits realized by the firm especially when such are high in maintaining a slot for a container in the port. To address this effectively, the management at Maersk establishes good relations with authorities at ports and terminals to assure allocation of slots. Similarly, the cost of containers proves very impactful to the successful functionality of the supply chain where Maersk’s bulk of investments is channeled. Consequently, the more the orders received, the more the containers that are required to ship the cargo from one port to another. Likewise, the cost of transportation of ordered state of the art containers from Korea and China present logistical challenges where it takes 2 – 4 years in the transportation that eventually cripples business during this time. To manage this costs on the business, the management of Maersk ensured that contracts entered into are delivered on by varying the capacity of the ships in regard to containers available to match with the orders as required by customers. Thirdly, fuel costs present yet another challenge for Maersk where the rising cost of fuel products sparks a chain reaction that is felt in the service delivery costs eventually, raising the cost of operations. To effectively deal with this Maersk ensues that these costs are borne by transferred to the consumer through Buffer Adjustment Factor to ensure the profitability of the business (Reinhardt, Casadesus-Masanell, & Nellemenn, 2012).
Environmental Impact
The environmental implications of shipping result in the pollution of sea waters in the case of oil spillages and global warming in the case of emissions from the massive diesel engines run cargo ships. Maersk Line is continuously involved in mitigation efforts that aim to address the increase of pollution from Green House Gas (GHG) emissions. For instance, it is actively engaged in supporting the efforts of the non-market based measure of the Energy Efficient Design Index (EEDI) a complex set of design standards aimed at developing innovation in the construction of efficient vessels to address pollution concerns (Reinhardt, Casadesus-Masanell, & Nellemenn, 2012).
Technical Changes
The need to set the pace for environmental conservation efforts in the Shipping industry is what drove Maersk Line to order the construction of twenty 18, 000 TEU triple-E vessels that cost a whopping $190 million to make each vessel. However, this was not without consequences such as the bigger vessels could not fit in the old ports besides the fact that competitors approach to replicate the move would result in overcapacity, in the market making it not a worthwhile venture. Nonetheless, the environmental preservation effect of the new vessels proves the venture worthwhile giving Maersk an edge over the competition (Reinhardt, Casadesus-Masanell, & Nellemenn, 2012).
Communication
Communication is the sixth element in the supply chain of Maersk’s shipping network which proves to be the most essential and central component to the successful delivery of goods around the world for the shipping company. Maersk has made strategic investments in communication technologies that sustain the functionality of the firms business in the shipping industry. Through its communication strategy, the company advances corporate transparency by making public knowledge its efforts in addressing environmental pollution. In the same line, Maersk Line has made investments in strengthening its communication networks to ensure that its ships deliver goods in stipulated timelines and the right conditions (Angerdal-Hjermind, 2014).
Control Chart
Conclusion
Maersk Line is undoubtedly a contender to reckon with in the shipping industry. Based on its commitment to customer service the company has ensured that it effectively delivers goods and services around the world to satisfied clients that set it apart from the competition. Perhaps the strength of the company lies in its commitment to capacity building and innovation by employing innovative ways to developing its communication networks coupled by its investments in technological advancements. The six components discussed herein inform the successful functioning of its supply chains around the world and the growth of the business as a market leader.
References
Angerdal-Hjermind, A. (2014, February 15). The Enterprise Social Media Relations Strategy: The Case of Maersk Line . Communication & Language at Work(3), 3-17.
Ndikom, O. B. (2012). A Critical Evaluation of the Challenges and Opportunities of Dhipping Line Services in Nigeria. Greener Jouranl of Business and Management Studies, 3(5), 241-250.
Reinhardt, F. L., Casadesus-Masanell, R., & Nellemenn, F. (2012). Maersk Line and the Future of Container Shipping. Harvard Business School.
