Damco looks to expand in “pockets of growth” around the world.
By Chris Dupin
Damco, the forwarding and logistics services arm of the A.P. Moller-Maersk Group, has ambitious plans for growth over the next several years and a big agenda as it adapts to a changing market.
“If we look ahead in the years to come I would say that we, like everybody, will probably see some real changes because the market has certainly not become easier over the last 12 to 18 months,” said Rolf Habben-Jansen, Damco’s chief executive officer. “We will need to make some modifications to our business model in order to make sure that we will continue to post good results and good growth over the years to come.”
He said Damco is looking to expand in “pockets of growth” and “tap into some of the larger megatrends around the globe,” including globalization and infrastructure investment in the emerging markets.
Damco has said it wants to grow the number of offices it has globally from about 350 to 600, but Habben-Jansen said future expansion will not be just doing “more of the same.”
Perhaps 40 to 70 of those offices will be operations centers, but most will be commercial offices designed to be very close to the customers.
“If you want to be successful as a business it’s quite important that you are active in the right markets or the right niche markets,” he explained. “Those need to be looked at in a much more detailed level than just on an overall trade lane or overall region or overall country perspective for that matter.
“You need to have a pretty good understanding of where markets are going,” he said.
For example, he said Damco is not active in the chocolate market, but if it were, a good area for expansion might be Tokyo because the Japanese are becoming bigger consumers of chocolate and that trend is expected to continue for the next 10-15 years.
Industrial products are a key vertical for Damco, and the company wants to have offices and deploy personnel where its customers are going to invest and be present.
Those pockets of growth, he points out, can be in both developing and mature markets such as Europe.
When American Shipper spoke with Habben-Jansen, he was visiting Munich.
“If you look at Bavaria and the whole area around Munich, still it is from an economic perspective quite a healthy area and that might be an area where we, for example, may want to deploy more resources,” he said.
Damco may look to add offices in producing or consuming regions or in areas from where business is effectively being controlled.
In the United States, Habben-Jansen said there are still a number of markets where Damco’s footprint is underdeveloped, and he gave Boston, Columbus and Seattle as examples. “So it’s quite likely that over the upcoming one and a half years, we will invest more in those markets,” he said.
He said the company has been happy with the development of its U.S. business in recent years. In the supply chain management business the company has added customers, lessening its dependency on three or four firms. It has developed other areas, including government and defense-related activities. Damco has grown its customs brokerage activity so that this year it will do about 180,000 entries, about double the number four or five years ago. It has also grown its non-vessel-operating common carrier business, particularly in the transpacific, very much based on midsized shipper accounts.
Damco has seen good growth in the air freight segment, Habben-Jansen said, both because of a better offering that it has been able to develop as a result of its acquisition of China-based forwarder NTS in August 2011, through organic growth, and building better relationships with companies in the technology and industrial segments.
Damco has pointed to several vertical markets it wants to pursue globally, namely retail, lifestyle and apparel products, perishables, chemicals, and technology.
Retailers, in many cases, have optimized their inbound supply chains and have controlled them from origin for years, Habben-Jansen said.
Many industrial, technology and chemical companies have “still quite some room to get those supply chains better under control,” he added. “Some of the learning that we’ve been able to bring in, or experience from the retail segment, can definitely be applied to those segments as well.”
In 2012, Damco had net revenue of $3.27 billion, 19 percent more than in 2011. Net operating profit for the year was $55 million compared to $63 million in 2011. In the first quarter of 2013, revenue was $773 million, up 6 percent over the first quarter of 2012 and net operating profit was $6 million compared to $7 million a year earlier.
The company moved 797,700 TEUs in 2012, 6 percent more than the prior year.
Air cargo was up sharply, 91 percent, to 210,600 tons in 2012, reflecting the full-year effect of the NTS acquisition.
Habben-Jansen said the increase shows “the rationale of the acquisition actually is holding water.”
Although shippers have been reducing their use of air freight, Habben-Jansen said by improving its delivery capability Damco was able to gain market share.
The company also made another acquisition in October of forwarder Pacific Network Global Logistics, which strengthened its position in Oceania.
He said while the company may make additional acquisitions in years to come, “it’s never going to be the core of our strategy.”
Instead, growth for Damco has come from “customers that we’ve already worked with for a long period of time.
“To me it is also important to make sure that you continue to have that capability to grow organically, because that effectively means that you have something to offer to your customers whereas just buying things to grow the business, that’s not necessarily a long-term, value-adding strategy.
“Our approach has very much been that we may do M&A, but then we only do it to fill up certain white spots that we currently have in our service portfolio, like air freight was in China and the Oceania trade lane was,” he said.
The company’s supply chain management business, up 5 percent in 2012, was 10 percent higher in the first quarter, and Habben-Jansen said Damco has been quite successful in the past year and a half to land new pieces of business in the segment. He does not believe the firm is likely to do further supply chain management acquisitions since it already has a strong position in that segment.
Commenting on the depressed freight rates in container shipping this spring, Habben-Jansen believes “the situation in the market right now is not very healthy. We have on a number of trades, a rate level which is below what is sustainable.
“There’s a lot of shippers that look at rates pretty much on a week-by-week or month-by-month basis because the volatility is so high and that just drives very technical behavior between shippers and logistics providers and carriers and in a way that takes the focus away from what we really should be doing, which is driving waste out of those supply chains rather than doing short-term cost optimization,” he explained.
“My viewpoint has always been that there is still a lot of waste in international supply chains and our added value as a logistics service provider should be that we help companies to drive out waste and you are just being distracted from doing that if you have to renegotiate every rate, every other week,” he added.
Though freight rates are low, Habben-Jansen said Damco has only changed its mix of short- and long-term contracts with carriers slightly.
“I would like to see it change a little bit more toward long term. I guess that is where the industry is still quite tactical,” he said. “We’ve made some movement there toward having a bit more long-term deals in place. But it’s not a lot — still not enough to my liking, at least.”
He also said there’s a limited willingness among carriers to enter into longer term deals, though he said “if I would put myself in the shoes of a shipping line I actually wouldn’t mind having some longer term base load in my network at a competitive cost. But I think we still need to mature a bit there and hopefully in three, four or five years we’re going to be there.”
Damco’s primary competitors include Kuehne + Nagel, Panalpina, DB Schenker, DHL, Expeditors, and in some markets CEVA and APL Logistics.
“I think what makes us a little different is that if you compare us to many of them then we are still somewhat smaller, which allows us to be a little bit closer to the customer and to organize ourselves a bit more around the customer rather than having to fit the customer into the network,” he said.
“I also believe that when you look at our presence then we are still, relatively speaking, quite a lot stronger in many of the emerging markets than some others. For instance, our presence in Africa with our own presence in about 35 countries I think is really different than what many others have.
“If you look at what you call the supply management product I think that’s where we typically come from the lead logistics provider side, whereas many others try to come more from the transactional services and try to upsell into that,” Habben-Jansen said. “We come very much from that LP (logistics provider) side and also offer the services. I do think that if you look at the background and training of many of our people that ours are truly different than others.”
He said Damco benefits from A.P. Moller-Maersk’s emphasis on selecting and training personnel. “The group has had a deliberate strategy over many years in terms of the type of people that they select and the way that they train and educate them and that is certainly something which pays off today,” he said.
Damco also recently relocated its headquarters from Copenhagen to The Hague in the Netherlands where it is co-located with APM Terminals.
That will reduce costs, but Habben-Jansen said the location will also allow the company to tap into a bigger talent pool, because of the Netherlands’ long tradition of being a gateway into Europe and home for many logistics providers. With many of Damco’s customers within a 200-mile radius of The Hague, he said it will also assist the company in being closer to its customers.