Chief Executive Officer Morten Engelstoft will set out a new and ambitious strategy for APM Terminals aimed at ensuring that the port company is equipped for the future market, when the growth rates noted in the past will be definitively over with.The 50-year-old CEO has already launched a series of initiatives aimed at cutting costs since he joined the Maersk Group's port company back in November.
It is also clear that APM Terminals will work closer together with Maersk Line as part of the new course for the group as a whole which, going forward, will bet on the transport companies in the new unit Transport & Logistics.
But if the port company is to remain successful during a time when overcapacity, shifting alliances, and a lower oil price have made it more difficult to turn a profit, it will need to work from a new strategy, says the CEO.
As such, Engelstoft has kicked off a comprehensive process which will bring changes to the company's headquarters in The Hague in the Netherlands and throughout its 73 terminals across the world.
At first the new CEO replaced the entire senior executive team and reduced it from five to three people, so that, going forward, it consists of him, COO Keith Svendsen, and a CFO who has yet to be hired.
Once the new team is settled, the next step will be to set some days aside in order to lay out a new course for APM Terminals.
Executive team will hole up
"The initiatives which we've already implemented have come in somewhat from the sideline, to be frank. We've done this because it was necessary to ensure an immediate effect," Engelstoft tells ShippingWatch.
"Once the new team is in place, and it's actually right now during these days that people are getting into their new roles, we'll start work on developing a new strategic plan for APM Terminals," he says.
The new executive team was appointed in January, and the company is currently working to get an overview of the challenges and opportunities found throughout the enterprise. One part of this effort is that teams are traveling around to the various countries to map out the business.
Keith Svendsen is new COO of APM Terminals. He comes from a position at Maersk Line. Photo: Maersk
This process is expected completed by the end of February, after which the executive team will gather at 2x3-day off-site meetings as part of the broader strategy process.
"It's incredibly important for me that we're not a bunch of individual executives who each execute our part, but that we actually all of us take responsibility for the overall task. This requires quite a bit of work, and as such, it's highly beneficial to undergo a strategy process together, in which we make the choices together, while also afterwards understanding why these decisions were made," says Engelstoft, who expects that the new plan will be completed in the coming months.
Power is centered
However, the cast is not the only thing to have been replaced at the top of APM Terminals.
The organizational structure at the company has also been changed. Rather than a regional focus, certain decisions will, going forward, be made more centrally and will often apply across the company. This, for instance, makes it easier to roll out processes or IT systems to all terminals at once.
And then there's Hamburg Süd, which is strong in South America and hopefully becomes a part of Maersk. As such, we have a big focus on this region"
Meanwhile, several of the major customers in the alliances have started negotiating their rates with port companies centrally, and it therefore no longer makes sense to negotiate these regionally.
However, this does not mean that APM Terminals will let completely go of its geographical focus, says Engelstoft.
"But it's clear that there are some areas that we'll focus on more than others. We have a huge focus on Latin America, where we have numerous active terminals along with several new terminals and upgrades underway in Guatemala, Mexico, Colombia, Ecuador, and Peru. And then there's Hamburg Süd, which is strong in South America and hopefully becomes a part of Maersk. As such, we have a big focus on this region," he says.
Oil countries in major setback
These winds blow at APM Terminals after a 2016 in which the company was hit by the same two trends which challenged the Maersk Group as a whole.
Overcapacity on the container market as well as the low oil price thus contributed big-time to the company's reduced earnings. Revenue as well as profit took a dive compared to the year before.
The terminals in countries such as Angola and Nigeria, in particular, but also in Russia and Brazil, pulled the result down, as the low oil price has virtually halted demand from oil dependent economies.
"In Angola alone volumes have decreased by 60 to 70 percent in the last two years. We have previously made a lot of money there, and clearly this development thus hits our result," says Engelstoft.
Will spend less money
The company has, as such, already made cuts. Last year the costs were reduced by six percent throughout the company, while costs were slashed 20 percent at the headquarters in The Hague. These efficiencies include a workforce reduction of 1,000 employees across the globe.
The tight focus on costs will continue this year, where APM Terminals will, among other things, make further cuts to the workforce in the oil countries, while investments overall will be scaled down.
From 2014 to 2016, the company's invested capital has gone from USD 4 billion to USD 6 billion, while it has another USD 2 billion committed to investments in the years to come. As such, new investments will be halted for now.
This is not least due to the fact that APM Terminals will now focus on better utilizing existing capacity, while the terminal operator projects an annual growth of two to three percent in the years to come, down more than 50 percent compared to previous estimates.
"So it's more difficult now than it was before, though this is still growth. If one prepares for growth at this level, then it's a market where one can still make a solid profit. That's our view," says Engelstoft.
English Edit: Daniel Logan Berg-Munch