CASE 1 Maersk Develops a Global Shipping Management System
A.P. Moller-Maersk is a Danish shipping, logistics, and energy which operates the largestcontainer feet in the world with over 600 ships, moving 13 million containers a year, with340 port facilities in 36 countries, and ofces in 130 countries. Standard steel shippingcontainers revolutionized world shipping in the latter half of the 20th Century becausethey could be used to bundle cargo into unitized loads in a single steel box that could beeasily moved, stored, and re-used. Also called “inter-modal containers”, they can be movedfrom ship to rail and trucks without re-loading or breaking up the contents by hand, greatlyadding to the efciency of world trade. The standard container is 8.5 feet high, and 20 or 40feet long. Containers are more than just steel boxes. With the growth in global shipmentsof food and produce, specialized reefer containers refrigerate their contents to levels oftemperature and humidity needed to preserve food. Maersk ships 25% of the refrigeratedcontainers 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 itoperates as two separate divisions: transport and logistics, and energy logistics. In 2017 itexited the oil exploration business, but retained its energy logistics business. In 2017 itgenerated $31 billion in revenue, up 7% from the previous year, and cut its 2016 losses ofnearly $2 billion down to $1.1 billion, a 40% improvement. Maersk has 88,000 employeesworldwide.
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 trueof 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 theprocess 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 digitalsystems. 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-importdocuments 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 ofenterprise 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 companiesdominate the industry, and establish standards (as in the telephone industry), or throughsome government intervention that forces standards on industries (as in the automobiles and pharmaceutical industries). The Internet is an exception to this rule: the Internetgrew 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 shippingcontainers, six million of them onboard vessels, and making 200 million trips a year! Foreach 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 andinefcient industry-wide business practices, with signifcant opportunities for improvement.
Maersk is one global shipping frm that has built an enterprise-wide digital shippingmanagement system that can reduce fuel consumption of its feet by optimizing voyagerouting, optimize utilization of its containers, enhance the tracking of containers on itsships, 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 analyticsto achieve optimal fuel and voyage management. Longer term, Maersk is planning to commercialize this capability by enabling shipping customers to access the system to tracktheir 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 asdomestic UPS or FedEx shipping. Changing the culture at Maersk involves in part becominga digital services company with a customer-friendly system, while maintaining its feet ofships 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?
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