Economic Times: December, 2015
New Delhi: Soren Skou, CEO of Maersk Line, visits India almost every year. India is important in many ways, including the fact that almost one-third of its roster are Indians. Maersk Line is part of AP Moller-Maersk Group, a Danish business conglomerate, which is keen to invest in port infrastructure. Skou, in an interview with ET, refers to "a lot of appetite" to grow in India. Edited excerpts:
How important is India for you?
Globally, we have 30,000 people and a third of our employees are Indians. This is our largest location by far, in terms of number of employees. We also have a substantial number of Indian sea farers. In India, we have a number of service centres that provide to the rest of the Maersk Line organisation as well as to the whole group. At least for our business we can say we have seen solid growth. The trade to and from India has grown and we have also been able to grow our market share here for the past few years under the leadership of Franck Dedenis. So, we see the Indian market quite positively.
Where does India figure in your plans of transforming Maersk?
We are doing the same things as your government is doing in terms of digitising our business model. If you look at the services we offer, there are huge opportunities with digitisation. We can enable our customers to do more business online, standardising and digitising processes. A large part of that work, given that we have our service centres here, is driven out of India. The ownership of a number of global processes are from India and the teams here are driving the transformation.
Has doing business in India eased?
The government has many good things on the agenda in terms of infrastructure. Infrastructure is crucial to our business: not only ports, but also rail and to some degree also road. We serve the Indian market through 14 ports in the country on both coasts. We have 45 inland container depots. So anything that the government does to build better infrastructure is in our view good news. Core processes are very positive seen from our point of view, not only because it will make our business easier to do but also because it will make India more competitive.
You are postponing investment and deferring capacity. Where will the growth come from?
So, different markets of course have different growth rates. India is actually one of the highlights when it comes to global growth today. But globally, we see growth in container demand coming down a lot — 1-3% this year and maybe next. These growth rates are the lowest in the past 4-5 years. If the growth continues at the same levels for the next 3 years, then there is already enough ship capacity in shipyards around the world. So, we are just adjusting our investment appetite to the reality of the market. I mean if there is no demand, then we don't have to invest in a lot of ships. I do want to highlight that in India, we have a lot of appetite to continue to grow. We are committed to this market and will continue to do so to grow our footprint here: the number of services, the number of ports we call. We are not only looking at mainly container ports but also inland container depots as well.
What are the top three issues the government needs to address?
More port infrastructure would be helpful. It's no secret that we have congestion issues in Mumbai: it's a combination of port infrastructure, better processes and less bureaucracy that needs to be implemented. And digitisation of the core processes is important. We are very supportive of the government's plans around using inland waterways for transportation. Many other countries have higher percentages of goods moving through inland waterways and along coastlines. Compared to moving over the road: it pollutes less and it's also more cost effective. So it makes absolute sense.
Obviously cabotage is an issue as well and it's not particular to India. As the CEO of a global company I think countries are foregoing opportunities by having cabotage rules. They are protecting all local shipowners' groups. But what it means for Maersk Line, for instance, in India is that the transhipment can't happen in India because of the cabotage rules. So we have to go to Dubai or to Colombo... and I am thinking why not have those jobs in India? Having said that, we can live with cabotage as long as the rules are the same for all.
How do you tackle the steady erosion in global freight rates?
In the past 10 years, there has been an average decline of freight rates between 1 and 2% per year. So, for us, the challenge lies in gaining efficiencies and finding cost savings every year — first to mitigate inflation and secondly, to take out every year the 1-2% percentage points of costs if you want to maintain margins. The remarkable thing is that we have seen we are actually able to do it on a pretty consistent basis.
If you look at the really big levers in the past 3-4 years: the ships are getting bigger. On a unit basis, as long as you fill the ships, you get lower cost. We have made massive improvements in fuel consumption, not only because the ships are getting bigger but also because we are getting much better at managing the ships.
The fact that we have these service centres in India is also helping us drive cost efficiencies, initially because there was a salary arbitrage. Today it's just as much about process improvement.