The bid to buy DB Schenker is a significant change of direction by Maersk with CEO Vincent Clerc acknowledging as much in last month’s annual results call.
Clerc explained that any fears of “disynergies” that the company harboured in the past are no longer applicable and so it is necessary to investigate whether a Schenker acquisition is viable.
However, with Deutsche Bahn expecting to wrap up a deal by the end of this year, and initial offers are to be submitted by the end of this month, meaning the race for the German forwarder, valued at between $13-16 billion, is well and truly under way.
Former research analyst Mark McVicar told Seatrade Maritime News that Clerc, by making a bold statement during February’s earnings call was sending a message to competitors that Maersk is interested and to keep away.
Nevertheless, Maersk is facing significant competition if German media reports along with Reuters are to be believed, with up to 10 bidders expected for the forwarder.
Bidders could include such heavyweights as DSV, which is said to be backed by the Saudi sovereign wealth fund, PIF, DP World, Saudi shipping and logistics company Bahri and UPS as well as financial investors such as Bain, CVC, Carlyle, Advent and Abu Dhabi investment vehicle ADQ.
Reuters reporting that DHL had said last week that it was not interested in bidding for the forwarder.
Ignoring, for the moment whether German regulators would allow a major German company to enter foreign, or non-European hands, there could be other hurdles for would be buyers, particularly a mega-carrier.
As these major players could now be involved in a bidding war the price for DB Schenker could rise substantially, putting Maersk’s strategy of buying into the major freight forwarding market at risk of unravelling, after McVicar had identified other risks inherent in the carrier’s plans.
The analyst said that when Clerc referred to CMA CGM as a successful proponent of a carrier entering the forwarding market, McVicar pointed out that the French carrier was a “very private company” and that had it “lost a chunk of business [following its acquisition of Ceva in 2019] it’s not telling anyone about it.”
McVicar, who covered DB Schenker when the company was listed, before 2004, said that after 20 years of ownership by Deutsche Bahn during which the forwarder was seen as the poor cousin, there were low levels of investment in the company as DB focused on rail investment.
“That means there was not the right levels of investment in DB Schenker in those years and so there is not the same levels of profit as its competitors,” explained McVicar.
In particular he pointed to the high levels of investment required in digital trading, including booking, tracking amongst other things, necessary to bring the German forwarder up to a similar level with its immediate competitors in profitability.
“The last time I looked Schenker’s profitability was a good way below that of DSV, Kuehne + Nagel or DHL,” said McVicar.
Acquiring a major forwarder with a requirement to apply major investment in the company’s digital systems, is effectively performing heart surgery on the company, and will not only need capital investment, but would likely reduce income until that surgery was complete.
Even so Clerc has set out Maersk’s strategy, which he says, “Is very clear we need to diversify our revenue streams and our earning streams towards a more stable and less volatile part of the supply chain, which is pretty much anything outside ocean to pier.”
For McVicar this is the reason that Maersk stopped expanding its fleet and is looking to expand other elements of its business, to decrease its dependence on port-to-port services.
An investment banker, who preferred to remain anonymous, explained that the most successful liner shipping company of the last 10 years is MSC and its only logistics acquisition came with its strategic buy out of Bollore Africa, a major growth region for the business.
However, the source was just as sceptical about liner companies being able to manage a situation where they compete with their own customers.
He put it more bluntly: “If I’m at Kuehne + Nagel why would I book with CMA?” he asked, “They’ll just steal my business.”
He went on to say: “It’s difficult for a seafreight business to pretend it’s [logistics arm] is at arm’s length, particularly if it has a large market share, only if the logistics company is a similar size, then they may be able to fill ships with their own business, but that’s not likely.”
In addition, the source argues that Klaus Michael Kuehne “has got it right”, he has a large shareholding in both Kuehne + Nagel and Hapag-Lloyd, but never merged the freight forwarding business with the shipping line.
McVicar essentially agreed with the source: “If you are a cargo owner and you can see that Hapag or CMA have cheaper rates, you wouldn’t want to see your freight end up on a Maersk ship.”
Moreover, McVicar points to the fact that Maersk does not have the managerial expertise to operate a major forwarder, which will make the carrier reliant on its existing management, but he added that this same management had expected to be able to buy the company, and McVicar speculates, that they may not be so willing to join Maersk in its odyssey.
However, Clerc believes that the size of the deal is a game changing scenario, not just for Maersk, but for the industry as a whole, saying “it will change the landscape in logistics.”
A giant deal would certainly shift the outlook for Maersk, but changing the rest of the supply chain will require Maersk to make it work.
