{"id":10005,"date":"2016-11-03T23:23:13","date_gmt":"2016-11-04T03:23:13","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/moving-the-world-how-climate-change-can-allow-maersk-to-dominate-the-future-of-transport\/"},"modified":"2016-11-03T23:23:13","modified_gmt":"2016-11-04T03:23:13","slug":"moving-the-world-how-climate-change-can-allow-maersk-to-dominate-the-future-of-transport","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/moving-the-world-how-climate-change-can-allow-maersk-to-dominate-the-future-of-transport\/","title":{"rendered":"Moving the World: How climate change can allow Maersk to dominate the future of transport"},"content":{"rendered":"

The shipping industry, accounting for over 3% of global CO2 emissions and physically touching every corner of globe, is all but guaranteed to be significantly impacted by climate change and associated regulatory reforms[i]<\/a>. This will affect few organizations within the industry more profoundly than Maersk, the world\u2019s largest container shipping company, responsible for transporting 15% of global seaborne freight[ii]<\/a>. Yet while a changing climate presents both opportunities and costs, addressing the challenge well could provide the company with a virtually unassailable competitive advantage.<\/p>\n

The most visible benefit for shipping lines is the emergence of the Arctic Northeast Passage, traversing north of Russia. The existing route between Europe and Asia is already the world\u2019s second busiest sea route, and passes near a number of piracy-laden spots including around the Malacca Strait, Somalia, and the Suez Canal[iii]<\/a>. The new route has the potential to shave roughly two weeks off of the standard Asia-Europe container shipping route, reducing a 35-day voyage down to roughly 21 days[iv]<\/a>. However, the route has not melted sufficiently yet, with it only usable a few months a year during the summer \u2013 \u201cthe way global warming is going, of course there is the opportunity\u2026but it will definitely not be within the next 15 to 20 years\u201d according to Nils Andersen, former Maersk CEO[v]<\/a>. Continued warming however could, by 2040, significantly shorten the length of Asian-European supply chains.<\/p>\n

Meanwhile, Maersk and the shipping industry face certain challenges they will need to adapt to as regulatory bodies, primarily the International Maritime Organization (IMO), begin the process of mandating tougher environmental standards. Two primary regulatory changes are in process \u2013 forced reduction in CO2 emissions, and a reduction in sulfur content in fuel. The maritime shipping industry already accounts for roughly 3% of global CO2 emissions, and the IMO forecasts that this will rise by between 50-250% by 2050[vi]<\/a>. Shipping could thus account for 17% of overall global emissions, if no change occurs[vii]<\/a>. Related to more stringent reductions in CO2 emissions, the IMO is also in the process of mandating that sulfur content in fuel be reduced to 0.5% by 2020, which could as much as double fuel costs[viii]<\/a>. While it varies by carrier, fuel currently represents roughly 40% of overall container line operating costs[ix]<\/a>.<\/p>\n

Figure 1: Existing and Projected Maritime CO2 Emissions<\/p>\n

\"graph\"<\/a><\/p>\n

[x]<\/a><\/p>\n

Maersk has begun to address the climate change challenge and these impending regulatory changes in two ways: voluntary leadership on key climate impact reduction goals, and industry leadership to force more drastic changes. On an individual front, the organization has committed itself to reducing total CO2 emissions by 30% by 2020, from its 2010 baseline, and a 60% reduction in emissions per container by 2020, from a 2007 baseline[xi]<\/a>. It plans to achieve these gains through slowing down average vessel sailing speed, retrofitting vessels with new environmentally-friendly technologies, and switching to cleaner fuels in select ports[xii]<\/a>. To date changes have reduced Maersk\u2019s emissions-per-container levels to roughly 20% below the industry average[xiii]<\/a>. Further changes are going to increase costs for Maersk, though it maintains it is willing to invest provided that the rest of the industry does so as well. On this front, it has thus begun publically and privately pushing the IMO and other key stakeholders to strengthen regulations governing the maritime industry.<\/p>\n

Going forward, much of the gains for shipping and the maritime industry will likely come from even greater efficiency gains on larger vessels, but also improving the overall efficiency of multimodal supply chains. This will primarily consist of improved data exchange and system design between freight forwarders, on-shore logistics firms, port, and shipping lines. Maersk\u2019s continued investment in APM Terminals, the port management firm owned by the company, and its industry leadership in data and analytics, indicate that it fully understands this situation. The challenge for the firm will be to continue investing in these solutions despite a severe downturn in shipping line profitability \u2013 a climate that has already forced either the bankruptcy, merger, or acquisition of 10 of the world\u2019s largest shipping lines in the past year and will see the industry lose $10 billion this year on $170 billion in total revenue[xiv]<\/a>[xv]<\/a>.<\/p>\n

Climate change and a changing regulatory environment are poised to have a dramatic impact on Maersk and the wider shipping industry\u2019s operations for decades to come. Should Maersk maintain its leadership position in the industry around climate issues, it will likely become the industry leader with a virtually unassailable competitive advantage. (751 words)<\/em><\/p>\n

 <\/p>\n

 <\/p>\n

[i]<\/a> Directorate-General for Internal Policies, Policy Department Economic and Scientific Policy A, \u201cEmission Reduction Targets for International Aviation and Shipping,\u201d European Parliament, 2015, http:\/\/www.europarl.europa.eu\/RegData\/etudes\/STUD\/2015\/569964\/IPOL_STU(2015)569964_EN.pdf<\/a>, accessed November 2016.<\/p>\n

[ii]<\/a> Richard Milne, \u201cArctic shipping routes still a long-term proposition, says Maersk,\u201d The Financial Times<\/em>, October 6, 2013, https:\/\/www.ft.com\/content\/f44bd53a-2e74-11e3-be22-00144feab7de<\/a>, accessed November 2016.<\/p>\n

[iii]<\/a> Data on shipping routes excerpted from The World Shipping Council<\/em>, 2013, http:\/\/www.worldshipping.org\/about-the-industry\/global-trade\/trade-routes<\/a>, accessed November 2016.<\/p>\n

[iv]<\/a> Tom Mitchell, \u201cFirst Chinese cargo ship nears end of Northeast Passage transit,\u201d The Financial Times<\/em>, September 6, 2013, https:\/\/www.ft.com\/content\/010fa1bc-16cd-11e3-9ec2-00144feabdc0<\/a>, accessed November 2016.<\/p>\n

[v]<\/a> Richard Milne, \u201cArctic shipping routes still a long-term proposition, says Maersk,\u201d The Financial Times<\/em>, October 6, 2013, https:\/\/www.ft.com\/content\/f44bd53a-2e74-11e3-be22-00144feab7de<\/a>, accessed November 2016.<\/p>\n

[vi]<\/a> Directorate-General for Internal Policies, Policy Department Economic and Scientific Policy A, \u201cEmission Reduction Targets for International Aviation and Shipping,\u201d European Parliament, 2015, http:\/\/www.europarl.europa.eu\/RegData\/etudes\/STUD\/2015\/569964\/IPOL_STU(2015)569964_EN.pdf<\/a>, accessed November 2016.<\/p>\n

[vii]<\/a> John Vidal, \u201cShipping \u2018progressives\u2019 call for industry carbon emissions cuts,\u201d, The Guardian<\/em>, October 19, 2016, https:\/\/www.theguardian.com\/environment\/2016\/oct\/19\/shipping-progressives-call-for-industry-carbon-emission-cuts<\/a>, accessed November 2016.<\/p>\n

[viii]<\/a> Justin Braden, \u201cIMO sulfur caps set to raise shipping fuel surcharges,\u201d JOC<\/em>, October 27, 2016, http:\/\/www.joc.com\/regulation-policy\/transportation-regulations\/international-transportation-regulations\/imo-sulfur-cap-set-raise-shipping-fuel-surcharges_20161027.html<\/a>, accessed November 2016.<\/p>\n

[ix]<\/a> Justin Braden, \u201cIMO sulfur caps set to raise shipping fuel surcharges,\u201d JOC<\/em>, October 27, 2016, http:\/\/www.joc.com\/regulation-policy\/transportation-regulations\/international-transportation-regulations\/imo-sulfur-cap-set-raise-shipping-fuel-surcharges_20161027.html<\/a>, accessed November 2016.<\/p>\n

[x]<\/a> Directorate-General for Internal Policies, Policy Department Economic and Scientific Policy A, \u201cEmission Reduction Targets for International Aviation and Shipping,\u201d European Parliament, 2015, http:\/\/www.europarl.europa.eu\/RegData\/etudes\/STUD\/2015\/569964\/IPOL_STU(2015)569964_EN.pdf<\/a>, accessed November 2016.<\/p>\n

[xi]<\/a> AP Moller \u2013 Maersk, Sustainability Report 2015, p. 9, accessed November 2016.<\/p>\n

[xii]<\/a> Jacob Sterling, \u201cMaersk Line and the Environment,\u201d downloaded from EcoCouncil \/ Maersk, www.ecocouncil.dk\/documents\/praesentationer\/717-101129-skibsfart-js\/file<\/a>, accessed November 2016.<\/p>\n

[xiii]<\/a> AP Moller \u2013 Maersk, Sustainability Report 2015, p. 9, accessed November 2016.<\/p>\n

[xiv]<\/a> Leo Lewis, \u201cNYK, MOL, and K Line to combine container shipping units,\u201d The Financial Times<\/em>, October 31, 2016, https:\/\/www.ft.com\/content\/dbdf7318-9f5e-11e6-86d5-4e36b35c3550<\/a>, accessed November 2016.<\/p>\n

[xv]<\/a> \u201cProfits overboard,\u201d The Economist<\/em>, September 10, 2016, http:\/\/www.economist.com\/news\/business\/21706556-shipping-business-crisis-industry-leader-not-exempt-profits-overboard<\/a>, accessed November 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

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