56_57 THINK ACT // MAERSK

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1 56_57 THINK ACT // MAERSK Ships, oil, supermarkets: Nils S. Andersen s job is a giant juggling act.

2 I rely on a mixture of planning and trust. THINK ACT: You re the CEO of a huge and diversified company with interests in container shipping, port management, oil drilling, banking, and supermarkets. Is it a big challenge to manage such a complex company? NILS SMEDEGAARD ANDERSEN: Yes, up to a point, we re very diversified, which is why we describe ourselves as a conglomerate. Some areas of the business are really just portfolio investments that have grown up over the years: for example we ve been building our supermarket chain very successfully since the 1960s with the help of a partner company, and we have no plans to sell it. But our core business is primarily oil, gas, and logistics. There are a lot of synergies between our main divisions, and the individual business units benefit from being part of a larger whole. Of course one of our main advantages is financial strength, which is a big plus for customers and suppliers. We can coordinate very large projects and investments, and use fluctuations in one area of the business to offset those in another. So where are the synergies between different parts of the business? N A: It s often the customers. We often provide them with services in one area, and then sign a contract with them in another. For example a government that wants us to build a harbor might already be using us to provide domestic freight transportation services, so they know that we re reliable. And sometimes we ll put together a package of services from different areas of our business. For example in Angola we operate a harbor, we ve built other infrastructure, and we re drilling for oil and gas, shipping > NILS SMEDEGAARD ANDERSEN is CEO of Möller-Maersk, one of the most complex businesses on the planet. Not content with being the world s biggest container shipping company, it also has interests in oil, gas, and logistics. Andersen tells THINK ACT how he runs such a vast conglomerate and why traditional management roles no longer work.

3 58_59 THINK ACT // MAERSK Forecasting is the be-all and endall for Andersen. When he orders a new ship, it takes three years to build and must then last for thirty years, so he has to plan carefully. containers into the country, and transporting goods inland. And what s it like for employees to work for a company with stakes both in shipping and oil? N A: There are lots of advantages for employees within a conglomerate. If you re good at captaining a ship, you re probably good at managing an oil platform, or if you want to work onshore you can manage customs issues in a port. Many of our former captains are rather good managers in other areas of business, and there are lots of opportunities for people to find the jobs that suit them best within the group. It s also good for us if managers come to us from other sectors of industry. We hold a meeting for the group s 120 most senior people each year, so we all know what everyone else is doing and can share ideas. How do you maintain an overview when you have so many different business models under one roof? N A: I rely on a mixture of very precise planning and trust in my managers. I also hold an annual long-term planning meeting for heads of divisions, where we draw up a very detailed strategy and discuss our investments and where we want to go in the next five years. This is followed by the group management board meeting, which sets priorities, allocates capital to the divisions, and sets targets for bonus and other purposes. Of course we can also diverge from these plans sometimes, but it s not that easy. Ours is a very long-term business. When we order a ship, it takes three years to be delivered and lasts for thirty years, so careful planning is very important. You have to be very, very good at forecasting in this business, and live with the fact that you sometimes get it wrong. Making mistakes is par for the course. You talked about planning, but how does trust fit into the picture? N A: When we ve completed our planning, we decentralize. We set benchmarks for the divisions so that they re leaders in every market where they operate, but precisely how they do this is up to them. I meet the heads of divisions once a month, but the day-to-day business is their responsibility. My role is to make sure everyone knows exactly what s expected of them, and trust them to get on with the job. Many of our former captains are good managers in other industries. Do you feel it s more difficult to run a big company like Maersk than it used to be? N A: Running a big company has always been difficult. Of course the markets are much more global than they were thirty years ago, and we re in competition with the entire world. As a CEO, you have to keep a close eye on far more competitors, markets, regions, and customers than you used to, and things are more complex and fast-paced. But we also have better tools available to us, and it s much easier to travel and meet people all over the world. There s the internet and better access to information, and people are much better educated than they used to be. Anyone in a big company will tell you how tough the market has become, and how fast decisions have to be made and implemented. There s no time for corporate navel gazing, but managers are also more skilled than they used to be. How do you personally deal with the complexity of being a CEO?

4 N A: It s very important to keep pace with what s happening in the world economy. I read a great deal of analyses and magazines, and I go to meetings like the World Economic Forum in Davos. I frequently travel, and meet politicians, economists, and lots and lots of customers. I try to be open minded and a good listener, and to learn lessons. These days, if you re too shortsighted or you think you know everything, you ll fail. And anyway, the world is changing too fast. Listening and learning. That doesn t sound like the traditional view of the CEO as a lonely, ruthless decision maker. N A: These days, you need so much specialist knowledge from so many areas that one person can t do it all on their own, and that goes for CEOs too. I encourage people to express their views, and I very often act on their recommendations. The only way of exploiting the benefits of diversification is to decentralize, so I have to delegate, which also makes life These days, if you think you know everything, you fail. less complicated for me. But of course you need good people to do that. And how do you find them? N A: People are motivated by different things than they used to be, and it s more about values. We want employees who are very interested in the things going on around them in the world, good people who want to work for a good company. It s not just about making money, though of course that s a factor. We want to make the world a slightly better place. For example if we build a harbor in a > In 2012, the company A.P. Möller-Maersk posted net earnings of around USD 4 billion on revenue of USD 59 billion. Its container shipping subsidiary Maersk Line is the world market leader, contributing USD 27 billion to revenue in 2012, but making a profit of only USD 461 million. In 2011, it was seriously in the red. Maersk is Denmark s biggest company, employing 108,000 people worldwide. As well as its shipping, oil, and gas operations, it owns port termi nals, a shipyard, the supermarket chain Netto, and a series of other retailers with a total of 1,300 outlets. The manager, Nils S. Andersen, was born in 1958, and became CEO of A.P. Möller-Maersk in He previously headed the Danish brewer Carlsberg, expanding it into a major international operation. Andersen graduated in economics from the university in his home town of Aarhus, and is a keen skier and tennis player. He speaks fluent German and English.

5 60_61 THINK ACT // MAERSK THE CONGLOMERATE and the key numbers for its four biggest units (2012) Return on Proportion invested Unit Revenue of revenue Profit capital Shipping USD 27.1 billion 44.0 % USD 461 million 2.4 % Oil and gas USD 10.2 billion 16.0 % USD billion 36.6 % Supermarkets USD 9.6 billion 15.0 % USD 222 million 8.1 % Terminals USD 4.8 billion 8.0 % USD 723 million 13.6 % developing country, that helps whole new sectors of industry to develop and gives people new opportunities. As CEO, I have to communicate those views to the outside world. My job is to inspire people, and that s another way in which the role of CEOs has changed. What does inspiration mean to you? N A: People need to know what the company s objectives are, and take pride in achieving them. When we decided to reduce our energy consumption, we asked employees for ideas, which worked

6 The Evelyn Maersk, one of the world s biggest container ships, in Ningbo, China, on its maiden voyage. really well and made people proud. I think communicating with staff is very important. But sometimes you have to take tough decisions that not everyone likes. A few months ago, you announced that in future Maersk would concentrate more on its other divisions and less on container shipping. How did this change of direction happen? N A: The decision was made at the board s strategy meetings. We drew up longterm plans and asked ourselves which divisions had the most potential, given that our cash flow is good, and we can put it to better use in areas other than shipping. But the decision doesn t mean that we re getting out of shipping, not at all: we simply want to keep pace with the market rather than outgrowing it, so we won t be ordering any new ships in the next few years. Shipping is very volatile, and prices and demand fluctuate a great deal. Maersk will be a more balanced business when container shipping accounts for about 30 percent of revenue rather than almost half, as it has up until now, but it will be a long time before this decision is reflected in the numbers. This is a long-term business, and we recently ordered some new triple E-class ships. We can achieve more with our cash flow in other divisions than in shipping. Maersk used to be famous for constantly catching the market offguard with new technology and other innovations. For example, you ve always invested in the biggest ships, and your competitors have sometimes thought they re not technically feasible. Are you getting more conservative? N A: No. We ll still be investing a lot of our resources in research and innovation, and working hard to remain the market leader. But a lot of innovations simply won t be used in the medium-term future. Demand is not growing as fast as it used to, so we don t need any ships bigger than triple E-class. And successful research isn t just about making bigger and bigger ships: for example you can make existing freighters more efficient by redesigning their hulls, and there s room for innovation in ship management, things like route planning. You sound pessimistic about the future of container shipping. N A: I do believe that some things will get better again. I believe that we re justified in charging more for each container we transport this year than in Freight charges simply have to increase, because no one in the industry is making acceptable margins at the moment, and we provide a good service, so we want good money. We need better returns because otherwise we won t be able to invest and our service will deteriorate. Customers realize this, at least on a theoretical, philosophical level, but it s still difficult when we actually sit down and negotiate with them. How do you expect world trade to develop? N A: There ll be very limited growth in demand for container transport this year, at around four to five percent. The key Europe-to-Asia route simply isn t growing fast enough, so we also need to cut our costs, which mainly means reducing our fuel consumption, but also improving our route planning so that the right ships operate on the right routes. It s a very complex network we re managing. The new triple E-class vessels are the world s biggest container carriers, 400 meters long and holding up to 18,000 twenty-foot containers. The initial order of ten ships is scheduled for completion by 2015, at a cost of around USD 190 million each. Do you really need these leviathans? N A: It s important to be clear that these ships aren t being added to our current fleet, they re replacing other ones. If we operated the triple Es in addition to existing capacity, prices would collapse. We re taking other smaller ships off the market. Some of them we ll be able to give back because we ve chartered them, and some will be laid up, in other words temporarily decommissioned. And some will probably be scrapped. But on the whole we re very pleased that the new ships are on the way. They re very modern and they have a much lower fuel consumption, which will help us to cut costs. Compared to the fleet average in 2011 when we ordered them, they ll save fifty percent of the energy costs per container at current prices. So the rewards are potentially huge. <