Damco merging with Maersk poses a threat to digitally deficient NVOs and carriers

By combining, the Maersk shipping line plans to provide an "end-to-end logistics solution" and, if successful, will be willing to gain enormous advantages over its competitors. It may be too early to call Maersk the Amazon of the supply chain, but this will take them one step closer. It's time for other service providers to consider building their own end-to-end offerings if they want to compete with Maersk.

Ironically, Maersk's move is a way to keep giants like Amazon and Alibaba out of the logistics industry. "If we don't do our job well, then surely big, strong companies like Amazon will see if they can do better on their own," said Søren Skou, CEO of A.P. Møller-Maersk told Bloomberg News in 2018.

Typically, importers have to combine a variety of logistics companies - carriers, customs brokers, forwarders - to secure delivery of a shipment. Damco has managed all of those relationships on behalf of their customer's supply chain. As a result, it can provide a seamless customer experience - and be a single point of contact for all parties.

By integrating Damco's logistics services, Maersk hopes to reach its customers directly, greatly simplify their operations, and eliminate the need for intermediaries such as freight forwarders.

Competitors will need to adapt

There are a number of reasons that the Maersk-Damco combination is capable of significantly changing market dynamics. For example, can existing Damco customers make reservations with other service providers? Will Maersk's new forwarding platform ever use the services of MSC or Hapag-Lloyd? And of course, Maersk has the potential to snatch business away from other carriers that are slow to provide their own terminal platforms.

Some of the market advantages from which Maersk will profit without a strong reaction from others in the industry include:

- Price advantage: As the world's largest shipping company, Maersk has the advantage of scale that allows them to keep prices as low as possible. By entering the freight forwarding business, Maersk can also pressure down the prices of its other logistics companies.

- Market access first: Maersk is the first major shipping company to plan to provide this type of end-to-end logistics-shipping service. Therefore, Maersk can reap profits across the entire logistics value chain.

- Reach existing Damco customers: Damco has a large list of its own customers and they can now use those existing relationships to direct shipping contracts to Maersk.

Forwarders have to reconsider their digitalization strategy in this evolving market landscape.

“The asset-heavy strategy has played out favorably for ocean carriers” said Philip Blumenthal, fa former vice president of sales and operations at Freightos, a veteran of DB Schenker and Dachser, and now an advisor to industry startups. “They are now able to redefine the market. The opposite strategy is to go digital, which is adding value by offering intelligence. Connecting data to provide the shippers control over their supply chains was a niche 4PL play. It may become the main market for forwarders that have created margins through arbitrage business in the past.”

Considering Maersk's current market dominance coupled with this new service offering, other logistics firms must forcefully innovate if they want to survive and thrive.

Phaata (Source: Adapted from Roger Crook, CEO, Zeus Logics - JOC)