What’s Going on at Maersk Line? Behind the Scenes of the Shipping Giant’s Culture Shift
Maersk Line is considered to be the largest container liner in the world, operating the largest container ships in the world, with revenues that are – for the moment – larger than many of its competitors. We can all see that the container shipping industry has become incredibly competitive over the last several years. But despite falling freight rates, in 2013 Maersk Line recorded $1.5 billion in profit – more than triple its profit from the previous year.
Some would attribute Maersk Line’s current success to the dramatic change in company culture that first began in the early 2000s and continued for around a decade. Meanwhile, others remain doubtful that this change was a positive one. Over that period, the carrier went from being an industry pioneer with an entrepreneurial spirit that placed a priority on customer care, to one that placed a priority on efficiency and standardized processes – to the detriment of customer service and employee care. So were these changes good or bad? In this issue of LM, we’re going to take a closer look at what’s changed at Maersk Line over the years.
The new book that’s making waves around the industry, Culture Shock in Maersk Line, is an insider’s look into the complex inner workings of the shipping giant throughout this transition. The book analyzes both the good and the bad of the culture shift through the comments of more than 100 current and former Maersk employees. We had the opportunity to talk to the book’s author, Mr. Lars Jensen. Mr. Jensen, now CEO and partner at SeaIntel, was with Maersk for 12 years. His book offers a unique look into the shipping giant’s decade-long cultural shift and the impact it has had on the company’s values, working environment, customer service and profitability.
The first thing to consider is Mr. Jensen’s motivation for writing the book. Was he aiming to simply share the Maersk Line story or to write a tell-all style exposé? Actually, as a data analyst by profession, Mr. Jensen hoped to analyze the changes at Maersk. Mr. Jensen says, “I noticed that over the last couple of years, every time I met with former colleagues anywhere in the world, whether or not they were still with Maersk, they continually wanted to talk about the change that had taken place. But I also found that, though it was an interesting topic to talk about, nobody seemed to be able to put everything in context. Nobody had the full story as to what had really happened. It seemed to me that everybody had a different piece of the puzzle and a slightly different viewpoint – some positive, some negative, some noncommittal. I wrote this book as part of my search for an explanation of what happened.”
So why exactly did the culture at Maersk have to change? In the past, Maersk had been a much more entrepreneurial company. Its country managers had a great deal of autonomy, and it was one of the reasons behind their success. This strategy, or rather, lack of strategy, was perfect for the market environment at the time. But of course, the market had changed, leading Maersk to make the decision to change as well.
Mr. Jensen explains, “I believe the whole change was brought about by Maersk slowly recognizing over many years that the marketplace for container shipping has fundamentally changed. And due to that change, they were in a situation where the old culture, which was perfectly well-suited for the market conditions they were in, was no longer suitable for the new environment they found themselves in. The old culture placed a high value on local drive and local initiative. People were starting new ventures and setting up new companies all over the world. That is perfect for a rapid growth environment. At the time, container shipping was a very new industry, and like any new industry, it was a high growth environment. In order to be successful, companies needed to be able to grow rapidly. Therefore, local drive and entrepreneurship were crucial.”
However, this meant that the processes and strategies in each country were very different, and as the company grew larger, it became more and more difficult to integrate all of these different strategies into a centralized headquarters. “In the wake of the 2001 recession, the management at Maersk began to recognize the need for a formal strategy. Prior to this, Maersk Line had never really had a formal strategy. But now, the company had become so large and complex that it seemed to be necessary.” From its first attempt at a corporate review and global strategizing, Maersk decided to remove some autonomy from the individual branch offices. Mr. Jensen continues, “They believed that, in order to use the assets and resources in the most optimal way, you could not maintain the autonomy of the individual branch office. Instead, you needed globally aligned processes.” Of course, not everyone was happy about this change, especially many country managers who didn’t want to lose their autonomy; in fact, some actively worked against the implementation of these changes. The move to reduce the branch offices’ authority, which goes along with their local relationships and knowledge, also affected the company’s ability to serve smaller local customers.
A few years later, in the pursuit of increased efficiency, Maersk Line initiated further staffing changes with unprecedented layoffs that lead to the exit of over 5000 employees. Due to this, some employees began to grow doubtful of their job security and their value to the company. The move may have enhanced Maersk Line’s efficiency, but it may also have come at the expense of employee satisfaction.
Maersk also went through other developments, such as a shift in the implementation of ‘Constant Care’, which is one of the company’s core values. It had once been understood to mean that Maersk would serve their customers with the utmost attention to detail and go above and beyond to provide excellent service. ‘No detail too small, no effort too great’ then became ‘The appropriate level of detail, at the appropriate level’. This change was accompanied by another big shift in priorities – Maersk began to focus more on larger customers rather than smaller ones.
Mr. Jensen explains the company’s reasoning, “There is the underlying reality that a large part of the cost base is tied up in ships. With $20 billion invested in ships, Maersk faced strong pressure to use those ships as effectively as possible. And with larger vessels and more services, the level of complexity is significantly increased, which makes it even more important to optimize. Carriers can reduce costs simply by improving the utilization of their assets. In order to do this, though, you need an organization that accepts and abides by the company’s processes. One way that this can be done is through a relatively centralized structure. However, one thing to keep in mind is that this strategy works well for the main deep sea trades, but it doesn’t necessarily lend itself very well to more local niche-based trades. The main deep sea trades are a cost game. These trades have become commoditized, so it’s important to operate as optimally as humanly possible.”
Does this mean that carriers can’t provide good localized service? According to Mr. Jensen, “Not necessarily, but what some carriers have found over the years is that the cost of providing that service is simply larger than the freight rate they’re able to get from these customers. It is either because customers are simply unwilling to pay for those services, or that the carriers are unable to provide these services in a cost-efficient manner.”
There are clearly pros and cons, winners and losers in the wake of Maersk’s strategic culture shift. Though initially profits might have seen some improvements, some employees and customers might not agree that the change was a positive one. It’s impossible to say whether Maersk’s current financial success will continue if the pursuit for the highest efficiency continues to lead to cuts in customer service. Additionally, less than stellar employee care may make it harder for Maersk to attract and keep the industry’s brightest minds as it has in the past. Of course, nothing is black and white. In many ways, there are both positive and negative aspects to the changes the company has made. Frankly, the jury’s still out on Maersk Line.