Maersk to plough bumper profits into global supply chain integration

AP Møller-Maersk is to use its bumper shipping profits to take global the $3.6bn Asian warehousing business it bought in December as the Danish container group aims to integrate its supply chain around the world.

Maersk’s $3.6bn acquisition of LF Logistics, announced in December, closed on Wednesday, and the group is wasting no time in taking the business to Europe and the rest of the world to bulk up its logistics offering.

“Not only will it unlock the growth in Asia, but we intend to take the platform globally,” Ditlev Blicher, head of Asia-Pacific for Maersk, told the Financial Times.

“This is a significant step forward both in our ambition to build a global integrator of supply chains as well as a massive step forward into the Asian theatre.”

Container shipping lines such as Maersk are expected to make record profits in both 2021 and 2022 as they benefit from sky-high freight rates owing to supply chain congestion that resulted from a surge in demand after the first wave of the Covid-19 pandemic.

Maersk and its two main rivals — Switzerland’s Mediterranean Shipping Company and France’s CMA CGM — have used some of the profits to push into land-based logistics, aiming to offer big shippers such as retailers and manufacturers the ability to move goods from the factory floor to the end consumer.

The higher-margin logistics business, predominantly used by large retailers, is meant to offer a counterweight to Maersk’s volatile container shipping, but some investors have worried that the companies may be overpaying.

LF, which was expected to have $1bn in revenues last year and $250mn in earnings before interest, tax, depreciation and amortisation, runs 223 distribution centres throughout Asia, working to fulfil orders for more than 400 global brands by delivering their goods either to the end consumer or to wholesalers.

It combines fulfilment, delivering goods to a customer’s specifications and satisfaction, for both in-store and online orders.

Blicher said Maersk was not currently present in fulfilment apart from in the US and would aim to use LF’s IT platform to expand in the rest of the world.

Asked if he thought Maersk could increase LF’s revenues, Blicher replied: “Very considerably. We are looking to grow this multiple-fold. We are not looking at small growth parameters, whether in Asia or globally.”

He described LF’s customer list as “a who’s who of blue-chip retailers”, and said such customers were keen to have a standardised service around the world, rather than depend on multiple local participants as they do at present.

Maersk itself has underlined how companies are increasingly looking to have multiple suppliers of components to avoid over-dependency on any one group.

Asked if that applied to logistics too, Blicher replied: “There is no one answer. There is a trade-off to consider. Most supply chains are dependent on single sourcing at some stage.”

Maersk, which has raised its group profit guidance three times in each of the past three years, has posted six consecutive quarters of organic revenue growth of more than 30 per cent in its logistics business.

On top of this, it has made several acquisitions such as $3.6bn for LF, a $1bn push into air freight last November and a $1.7bn deal this year for a US logistics group.