Maersk Line withdraws more capacity, drops plan to invest in more ships

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maerskDanish carrier Maersk Line said it is no longer pushing through with plans to acquire more mega vessels as part of it intensified campaign to trim capacity amid the current demand slump.

The box liner is taking drastic and immediate steps to reduce capacity, improve efficiency, and cut operational costs, including halting new investments in more ships as market conditions continue to be unfavorable.

“As a response to both the short term and long term market outlook, Maersk Line is accelerating a number of already established cost and efficiency initiatives,” the company said in an emailed statement.

Maersk Line said it will reduce its network capacity and postpone investments in new capacity, while at the same time reducing operating costs by escalating already announced plans to simplify the organization.

“In light of the lower demand these initiatives will allow Maersk Line to deliver on the ambition to grow at least in line with the market to defend the market leading position,” it said.

Over the next two years, Maersk Line expects to lower the annual sales, general & administration (SG&A) cost run-rate by US$250 million with an impact of $150 million in 2016. SG&A savings will be derived from already initiated transformation projects and the standardization, automation and digitalization of processes.

“We are on a journey to transform Maersk Line. We will make the organisation leaner and simpler. We want to improve our customer experience digitally and at the same time work as efficiently as possible,” said Maersk Line CEO Soren Skou.

He added that Maersk Line will also be trimming its global staff by the thousands over the next two years.

“Today, Maersk Line has 23,000 land based staff globally. The organisational transformation and on-going automation and digitalisation will enable Maersk Line to reduce the global organisation by at least 4,000 positions by the end of 2017 with the aim of minimizing redundancies through managing natural attrition,” said the statement.

“We are fewer people today than a year ago. We will be fewer next year and the following year. These decisions are not taken lightly, but they are necessary steps to transform our industry,” said Skou.

As the market outlook continues to be dim, the company said network capacity will be reduced in the fourth quarter of 2015 and throughout 2016. The company initiated over the past two months the closure of four services—ME5, AE9, AE3 and TA4—and said “plans are in place to further cancel a total of 35 sailings” in the fourth quarter.

Moreover, capacity management will be more strictly enforced. “Maersk Line will continue to manage capacity and does not plan to exercise the previously announced options for six (6) 19,630 TEU vessels and two (2) 3,600 TEU feeders and will postpone decision on the optional eight (8) 14,000 TEU vessels.”

The statement comes as Maersk Group prepares to release its interim report for the third quarter of 2015 on November 6.