Case 1 maersk develops a global shipping management system

CASE 1 Maersk Develops a Global Shipping Management System 

A.P. Moller-Maersk is a Danish shipping, logistics, and energy  which operates the largest
container feet in the world with over 600 ships, moving 13 million containers a year, with
340 port facilities in 36 countries, and ofces in 130 countries.  Standard steel shipping
containers revolutionized world shipping in the latter half of the 20th Century because
they could be used to bundle cargo into unitized loads in a single steel box that could be
easily moved, stored, and re-used.  Also called “inter-modal containers”,  they can be moved
from ship to rail and trucks without re-loading or breaking up the contents by hand, greatly
adding to the efciency of world trade.  The standard container is 8.5 feet high, and 20 or 40
feet long.  Containers are more than just steel boxes. With the growth in global shipments
of food and produce, specialized reefer containers refrigerate their contents to levels of
temperature and humidity needed to preserve food.  Maersk ships 25% of the refrigerated
containers in the world.

Maersk refers to itself as the world’s largest shipping company.  Founded in 1904 by steam-
ship captain Peter Maersk Moller, in 2018 it accounts for about 15% of the world’s $80 trillion global domestic product, which amounts to an estimated $12 trillion in goods.  Today it
operates as two separate divisions: transport and logistics, and energy logistics. In 2017 it
exited the oil exploration business, but retained its energy logistics business.   In 2017 it
generated $31 billion in revenue, up 7% from the previous year, and cut its 2016 losses of
nearly $2 billion down to $1.1 billion, a 40% improvement.  Maersk has 88,000 employees
worldwide.

While most industries and frms have undergone extensive changes and disruptions in the  
last 25 years as digital technology and the Internet have developed, this has not been true
of the global shipping industry.   The underlying business processes involved in shipping  
today are still largely manual paper-based transactions although individual companies  
have made extensive digital investments in ship systems, navigation, communications,
and container tracking.  The culture of global shipping frms has focused primarily on the
process of shipping, and not on the processes needed to manage millions of containers,
or provide digital services to their customers.   The lack of industry- wide and government-
wide standards has been a major impediment to improving performance using digital
systems.  In part this is because of the complexity of shipping goods among 130 countries,
each of which has diferent kinds of documents like bills of lading, diferent export-import
documents and procedures, and diferent legal and fnancial systems.  Firms that use inter-
national shipping also have their own unique shipping systems developed by a variety of
enterprise software companies.  There are no industry or inter-governmental standards that  
address the business processes for managing global container shipping.   

Standardization typically comes about in industries when either one or a few companies
dominate the industry, and establish standards (as in the telephone industry), or through
some government intervention that forces standards on industries (as in the automobiles  
and pharmaceutical industries).  The Internet is an exception to this rule: the Internet
grew out of university and private eforts at frst, and then was developed by both non-
government engineering groups, and government agencies within the United States.   
None of these conditions apply to global shipping frms where no one frm dominates the  
industry, and international standards have not been imposed by international organizations  
such as the United Nations.  This is a problem for an industry with over 200 million shipping
containers, six million of them onboard vessels, and making 200 million trips a year!  For
each container shipped, there may be up to 30 diferent parties involved such as govern-
ment agencies, the shippers and the receivers of goods, port authorities, and tax authorities,  
communicating up to 200 times for each container being shipped.  The result is costly and
inefcient industry-wide business practices, with signifcant opportunities for improvement.   

Maersk is one global shipping frm that has built an enterprise-wide digital shipping
management system that can reduce fuel consumption of its feet by optimizing voyage
routing,  optimize utilization of its containers, enhance the tracking of containers on its
ships, as well as manage the empty containers waiting to be deployed.  One foundation of this efort involves the Internet of Things (IoT): using sensors on every container to continu-
ously monitor its location, and movement, along with the temperature and humidity of its  
contents for reefers.  A second foundation of Maersk’s system is using business analytics
to achieve optimal fuel and voyage management.  Longer term, Maersk is planning to  
commercialize this capability by enabling shipping customers to access the system to track
their cargos directly, and to reserve containers for their use based on their own produc-
tion and shipping plans.  The goal, in the end, is to make global shipping as convenient as
domestic UPS or FedEx shipping.  Changing the culture at Maersk involves in part becoming
a digital services company with a customer-friendly system, while maintaining its feet of
ships and containers.   

Answer the following questions and save in a word doc:

1. Why is Maersk’s business model “complex”?
2. What role do IoT sensors play in Maersk’s systems?
3. Why is tracking empty containers so important to efcient operations?
4. What is the “data driven culture” that Maersk is trying to strengthen?
5. Why does Maersk want to give their customers access to their system?