This report provides an in-depth analysis and assessment of how Maersk has been responding to the challenges of sustainability in the transportation and logistics industry. Sustainability in logistics has been the focus in the decision-making and conducting business for most of the players in this industry. This report provides you with: an introduction to the overall logistics industry and challenges facing the industry, sustainability in logistics and the underlying regulations.
This report provides an in-depth analysis and assessment of how Maersk has been responding to the challenges of sustainability in the transportation and logistics industry. Sustainability in logistics has been the focus in the decision-making and conducting business for most of the players in this industry. This report provides you with: an introduction to the overall logistics industry and challenges facing the industry, sustainability in logistics and the underlying regulations.
This report provides an in-depth analysis and assessment of how Maersk has been responding to the challenges of sustainability in the transportation and logistics industry. Sustainability in logistics has been the focus in the decision-making and conducting business for most of the players in this industry. This report provides you with: an introduction to the overall logistics industry and challenges facing the industry, sustainability in logistics and the underlying regulations.
Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010
Datamonitor. This brief is a licensed product and is not to be photocopied Page 1 ENERGY & SUSTAINABILITY CASE STUDY SERIES A.P. Moller - Maersk Sustainability Case Study How is A.P. Moller - Maersk responding to the challenges of sustainability? Reference Code: EN00001-003 Publication Date: December 2010 DATAMONITOR VIEW Catalyst Environmental performance is fast becoming an important factor in customer behavior regarding the shipment of documents and packages from one location to another. With the availability of a variety of possible ways cars, trucks, planes, trains, and ships to get a shipment from one point to another, transport firms in the logistics and express industry are under pressure from their clients, which are demanding choice in terms of price, speed, security, and environmental impact and the use of natural resources. Recent research and initiatives covering sustainability issues suggest that manufacturers and retailers are becoming more pro-active and express firms are increasingly demonstrating leadership in sustainability in order to play their part in the drive towards achieving greener supply chains. Sustainable development is an increasingly important facet of the modern transportation and logistics industry, and in order for a company in the industry to be viewed favorably among customers and consumers, it needs to be seen as operating in ways that are socially, environmentally, and economically responsible. Datamonitor View A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 2 Scope of the report Sustainability in logistics has been the focus in the decision-making and conducting business for most of the players in this industry. This report provides an in-depth analysis and assessment of how Maersk has been responding to the challenges of sustainable development in the transportation and logistics industry. The report provides you with: An introduction to the overall logistics industry and challenges facing the industry, sustainability in logistics and the underlying regulations An overview of Maersk in terms of business operations, evolution of the company and sustainability practices adopted A snapshot of performance ratings, awards and recognitions won by Maersk with respect to its sustainability efforts and performance Assessment of sustainability programs adopted by Maersk and SWOT analysis from a sustainability perspective Summary The logistics industry, being a key enabler in the supply chain, is under constant pressure from players in the industries it serves to help mitigate their carbon emissions. Over the last few years, this has resulted in increased efforts by major logistics firms like DHL, Maersk, TNT, and so on to incorporate sustainable practices into their operations. Maersk, a $48.5bn company, is one of the worlds largest shipping companies and also has activities in a variety of business sectors including energy, logistics, retail, and manufacturing. The group's global network consisted of 531 owned and chartered container vessels with a total capacity of 2.1 million twenty-foot equivalent unit containers as of December 31, 2009. As it is the largest container shipping company in the world, the business activities of Maersk have the potential to make a great impact on the environment on the global, national, and local levels. Ship recycling, waste handling, and the use of a voyage efficiency system are some of the measures the group has undertaken in its attempt to become a sustainable player. The introduction of slow steaming in ships has not only reduced emissions but also lowered fuel consumption costs for the company. The Green Passport scheme is another initiative undertaken by the group, involving the safe dismantling of ships once they are no longer fit for purpose. Due to the efforts undertaken by the group, its greenhouse gas emissions fell by about 7% of carbon dioxide (CO 2 ) equivalent in 2009 compared to 2008. The group, in addition to adopting sustainable measures to reduce its environmental impact, also partnered with educational institutions, government agencies, non-governmental organizations (NGOs), to provide solutions to the environmental challenges. Various initiatives like Green Ship of the Future and a new propeller design are in the experimental stage; if effective, they might further strengthen Maersks position in its attempt to reduce its emissions. Introduction A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 3 INTRODUCTION Logistics is an arm of supply-chain management services that focuses on reducing operational costs, improving delivery standards, and increasing flexibility to improve the competitiveness of a business across the value chain. The importance of logistics and supply-chain management continues to increase due to globalization as a greater number of firms globally continue to source, manufacture, and distribute on a global scale, making their supply chains very complex to manage. The key market players in the logistics industry for the year 2010 with respect to business structure, operations, and profitability are UPS, FedEx, DHL, Maersk, Nippon Express, Ryder, TNT Post Group, and Expeditors. In 2009, the global transportation market size was about $2.6 trillion. According to Datamonitor, the global transportation sector is expected to grow at a CAGR of 0.59% during the period of 20092014 to reach a value of $3.5 trillion by 2014. Figure 1 below shows the total revenue growth in the transportation industry as projected by Datamonitor. Figure 1: Transportation industry distribution by mode, 200914
71% 70% 71% 71% 71% 71% 7% 7% 7% 6% 6% 6% 4% 5% 5% 5% 5% 5% 13% 13% 13% 13% 13% 13% 5% 5% 5% 5% 5% 5% 0% 20% 40% 60% 80% 100% 2009 2010 2011 2012 2013 2014 M a r k e t
S h a r e Road Rail Air Sea Inlandwaterways Source: Datamonitor D A T A M O N I T O R
Sustainability in logistics Introduction A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 4 As a key enabler in the supply chain, the logistics industry is under pressure from players in the industries it serves to help mitigate their carbon emissions. Regulatory pressure has also increased in recent times due to the large role of vehicular and air transport in the industry. What this has resulted in over the last few years is that major logistics firms like DHL, Maersk, and TNT have increased efforts to incorporate sustainable practices into their operations. These firms see sustainability as being more than compliance. They see it as the only way forward, where cost savings and client satisfaction as a result of sustainability measures will help them stay one step ahead of the competition. Practices such as network optimization, carbon emissions tracking, modal shifts, and the use of alternative propulsion technologies and fuels have become increasingly common in the sector. The increase focus on the sector from governments and its own customers over the next few years will only serve to fuel this trend. Figure 2 gives an overview of major sustainability practices in the logistics industry. Figure 2: Key sustainability practices: logistics
Sustainability in logistics Alternative fuels Route optimization Modal shifts Onsite generation or adoption of renewable energy Optimization of loading techniques Improved flight paths and precision Emissions tracking Source: Datamonitor D A T A M O N I T O R The industry will have to overcome challenges posed by supply-chain risk management and the reduction of fuel consumption, among others. In order to meet them, companies are actively collaborating with governments, clients, and independent organizations to develop new strategies and technologies. Increasingly stringent regulations are also pushing companies towards sustainability. With the EU Emission Trading System (ETS) now covering aviation, and several greening transport initiatives by the European Commission (EC), logistics firms now have to rework their transport networks, balancing compliance and profitability. Overview of Maersk Introduction A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 5 Maersk is a Danish business conglomerate operating in 130 countries with nearly 115,000 employees. Other than being one of the worlds largest shipping companies, Maersk also has activities in a variety of business sectors including energy, logistics, retail, and manufacturing. Maersk operates in the following areas: container- and shipping-related, tankers, offshore and related, terminal activities, oil and gas activities, retail and other, and technology-related activities. It is the worlds largest container ship operator and supply vessel operator. The revenue for Maersk was $48.5bn, which was 21% lower in 2009 than in 2008 due to lower freight rates for shipping and lower average oil prices. The groups container shipping activities were hard hit due to the tough market conditions. Similarly, most of the other business areas of the group experienced a negative impacted due to the low business activity. For 2010, Maersk is expecting to report a nominal profit. Cash flow from operating activities is expected to be considerably higher, while cash flow used for investments is expected to be much lower than in 2009. Table 1: Maersk: key facts Head office Copenhagen Revenue (2009) $48.5bn (DKK260.0bn) Revenue (2008) $61.2bn (DKK311.8bn) Growth (20082009) (-) 21% Employees 115,000 CO 2 emissions (2009) 45 million tons Financial year end December Primary stock exchange (ticket) Denmark OTC (MASRKS B) Source: Datamonitor D A T A M O N I T O R Distribution of revenue for different business units in the group is given in Figure 3 Introduction A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 6 Figure 3: Maersk: revenue distribution, 2009
Others 2% APM Terminals 6% Tankers, offshore & other shipping activities 11% Oil & gas activity 18% Retail activity 21% Container shipping & related activities 42% Note: the figure above does not include eliminations, which constitute about $1.7bn Source: Datamonitor D A T A M O N I T O R It can be seen from the above figure that container- and shipping-related activities is the largest business area for Maersk, accounting for almost two fifths of the groups revenue during 2009. History of Maersk Arnold Peter Moller and Captain Peter Maersk Moller established Dampskibsselskabet Svendborg in 1904. In 1912, the company established Dampskibsselskabet, based in Copenhagen. Arnold Moller went on to establish Odense Steel Shipyard in 1918. The group established a cargo liner service, linking the US and the Far East in 1928, under the name of Maersk Line. In the same year, the group started its tanker business. In 1953 the A.P. Moller and Chastine Mc-Kinney Moller Foundation was established to support Danish culture and heritage. The foundation also supports medical sciences and Danish shipping. The group acquired a controlling interest in Dansk Industri Syndikat in 1959. The company got a concession for oil and gas exploration and production in Denmark in 1962 and work was commenced under the name of Dansk Undergrounds Consortium (DUC). Two years later, the group expanded into the retail business segment by establishing Dansk Supermarked in partnership with F. Salling . In 1977, Maersk Logistics was established with branches in Taiwan, Hong Kong, and Singapore. Introduction A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 7 The groups expansion process continued with the acquisition of Norfolk Line, a shipping company, in 1985. The group established Maersk Container Industri to produce reefer containers in 1991. In 1999, the group acquired Safmarine Container Lines and the international container business of Sea-Land Service. Due to adverse financial conditions, Maersk Container Industries ceased production of reefers at its Tinglev plant in 2006. In the same year, Maersk Line acquired P&O Nedlloyd to become the largest container shipping line in the world, to the extent that it was then twice the size of its nearest competitor. During the same year, APM Terminals, the terminal arm of Maersk, started a joint venture with Aqaba Development to manage, operate, and expand the Aqaba Container Terminal. In 2007, Maersk Line, Hamburg Sud, and NYK Line entered into a partnership to operate jointly in the trade between Asia, South Africa, and South America. Overview of sustainability practices at Maersk In an effort to communicate the sustainable practices undertaken by the group, Maersk published its first sustainability report in 2010, although the practice is not novel. It has been practicing sustainability under four broad focus areashealth, safety, security, and the environment. As such, the group increased its efforts related to climate and the environment in 2009. Maersk Line introduced slow steaming during the economic downturn for reasons that were economic rather than environmental, but there has been a position environmental effect. Due to the process being slowed down, fuel consumption is considerably reduced, and since fuel costs are high there has been a significant cost benefit. Maersk Line, the firm's largest business group, has set a goal of reducing 20% of CO 2 emissions per container transported by 2017. The group, in addition to adopting sustainable measures to reduce its environmental impact, also partnered with educational institutions, government agencies, NGOs, and so on to provide solutions to these environmental challenges. Given below in Table 2 is the list of all such organizations. Table 2: Maersk: key collaborations Name of organization Collaboration details Beyond Monitoring Maersk joined this group to create an innovative approach to sustainable supply chain management that will make a concrete impact. Clean Cargo Working Group Maersk Line partnered with this group to incorporate social and environmental business principles into transportation management Energy Efficient Transport Planning This is a joint project involving Maersk Line, the Technical University of Denmark, and the IT University of Copenhagen to reduce energy consumption and CO 2 emissions in the transportation sector through new IT tools and mathematical optimization. Massachusetts Institute of Technology Damco has joined MIT Supply Chain Exchange program to develop methods to measure and reduce carbon footprint and also to promote global standards in this area. Port of Rotterdam This partnership should help APM Terminals improve productivity, efficiency, land utilization, environmental sensitivity and public awareness in container terminal industry. Some projects will also focus on environmental best practices, sustainability, cost reduction, security and so on. International Tankers Owners Pollution Federation This organization aids and assists all parties when a spill occurs, with services ranging from providing response and containment equipment to motoring clean-up operations. Green Ship of the Future The group has joined Green Ship of the Future, a collaboration of companies in the Danish maritime industry that have come together to develop strategies to reduce CO 2 emissions by 30%, sulfur oxide by 90%, and nitrogen oxide by 90%. Source: Datamonitor D A T A M O N I T O R Perception of Maersks Sustainability Efforts A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 8 PERCEPTION OF MAERSKS SUSTAINABILITY EFFORTS The way in which Maersks sustainability efforts and practices are communicated is essential to determining how its clients, NGOs, and rating agencies recognize the company. Maersk can communicate its sustainability efforts through various sources such as sustainability reports, annual company reports, its website, and so on. However, the group has little control over how external institutions choose to perceive its sustainability efforts and in turn rate the company. Performance in independent ratings and rankings The Carbon Disclosure Project (CDP) is an independent not-for-profit organization holding the largest database of primary corporate climate change information in the world. Organizations across the worlds major economies measure and disclose their greenhouse gas emissions and climate change strategies through the CDP. In 2010, the CDP requested the worlds largest 500 public companies in the FTSE Global Equity Index Series (Global 500) to demonstrate the action they are taking on climate change. CDPs global advisor PricewaterhouseCoopers analyzed the responses of these corporations. Maersk was rated based on this analysis. For the year 2010, the carbon disclosure score of Maersk was 66 and its carbon performance score was B. A detailed explanation of the methodology used for the carbon disclosure score and carbon performance score is given in the APPENDIX section. This score is moderate when compared to the rest of the companies in the same sector. Sector leaders like Siemens and Deutsche Post have carbon disclosure scores of more than 95 and carbon performance scores of A. In November 2010, Maersk Line was the only shipping line to have received an independent assessment of its CO 2 emissions. Starbucks Coffee Company, one of its customers, has applauded this initiative taken by the group as it provides transparency regarding the emissions. This step taken by the group also helps Starbucks to lower its carbon footprint, improve, and monitor the emissions of their supply chain. Carbon War Room, an NGO, also has said it appreciated the move. Being a good environmental steward is important to Starbucks Coffee Company. Our global logistics providers can aid us in lowering the carbon footprint of our supply chain by improving their CO 2 emissions data. Quantified measurement and verification is a step in the right direction. Together, we continue to strive to better the world in which we do business. John Bauer, director of global transportation, Starbucks Coffee Company Maersk has set a precedent for the shipping industry by making available this credible and detailed environmental data to their customers. We would like to see effective comparisons across the entire fleet with ubiquitous indexing. Maersk has laid down an important challenge today, underlining that progress in efficiency can be made economically, and without industry-wide consensus. Peter Boyd, COO, Carbon War Room In 2008, the groups board approved a group-wide environmental strategy, Eco-Efficiency. This strategy, if implemented, is expected to result in substantial benefits like meeting customer requirements at a higher and better level, improving the groups resource productivity, and lowering the environmental costs of the group. This strategy would also encourage the Perception of Maersks Sustainability Efforts A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 9 efficient use of the natural resources to have a minimal effect on the environment. It would also improve the groups relationship with governments and various other regulatory agencies and would help it to better manage environment- related risks. Awards Due to the effort displayed by Maersk in its attempt to become a sustainable organization, various prestigious organizations have lauded and recognized its work. Given below in Table 3 is a list of all the awards presented to different business units of the group. Table 3: Maersk: sustainability awards and recognitions, 200910 Awards Description Year Environmental Protection Award Maersk Ship Recycling won this award for its achievement in green ship recycling at Lloyd's List Asia Awards 2010 Safety at Sea International award APM Terminals received this award for management and operations based on its "safety culture" initiative 2010 Green Innovator Award Maersk Shipping Hong Kong received this award for demonstrating leadership and cutting down on greenhouse gas emissions and introducing solutions like super-slow steaming. 2010 Safety honors both on East and West coast New York Shipping Association recognized APM Terminals for its outstanding achievements in workplace safety. 2010 Sustainability Carrier of the Year Maersk Line (ML) received this award from Wal-Mart Canada for its achievement in providing a software solution (a joint venture project between ML and Wageningen University) called Quest. Quest saves up to 50% of energy by ensuring that cooling units are used more sparingly. 2010 Safety at Work Moroccan Terminal won this award for its safety measures at workplaces. 2010 Terminal of the Year Award Gateway Terminals India won the Lloyd's Terminal of the Year Award based on safe, reliable, cost-efficient, and environmentally friendly services. 2009 Clean Seas and Environment Maersk Line won the Lloyd's List Middle East and Indian Subcontinent Award for their efforts to protect the environment. 2009 Best Environmental or Energy Efficiency Program Award UK Plastic Industry awarded Rosti Plastics (then part of Maersk) its Best Environmental or Energy Efficiency Program Award. 2009 Green Award Maersk Rosyth, one of Maersk's tankers, received this award for being extra safe and extra clean. 2009 2 Year Goal Zero Days Award Maersk Supply Service received this award from Sarawak Shell for reaching a period of two years without lost time accidents on its ships Maersk Seeker and Maersk Supplier. 2009 Safety at Sea Lloyd's List Global awarded Maersk Line this award for its efforts to safeguard employees and to create awareness about safety. 2009 Sustainable Shipping Operator of the Year Maersk Line won this award for its efforts to reduce energy consumption and emissions. 2009 Corporate Social Responsibility (CSR) Award The Group won this award at the Seatrade Asia awards in Shanghai. 2009 Best Green Service ProviderShipping Line Maersk Line won three awards Best Global Shipping line, Best Line (Asia to Europe) and Best Green Service Provider (Shipping Line) at the 23rd Asian Freight and Supply Chain Awards. 2009 Source: Datamonitor D A T A M O N I T O R Sustainability Challenges in Transport and Logistics A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 10 SUSTAINABILITY CHALLENGES IN TRANSPORT AND LOGISTICS Main sustainability challenges facing the logistics industry The ubiquitous nature of the transportation and logistics sector means that any efforts it undertakes will have a cascading effect on most other industries. Therefore, industry participants from various sectors are always on the lookout for developments in sustainability practices within the logistics industry. However, for the sector to bring about significant changes, it needs to overcome significant challenges like regulatory compliance, implementation of sustainability in new markets, etc. A list of these challenges is presented in Figure 4. Figure 4: Sustainability challenges in the industry the home of Business Intelligence TNT Datamonitor Implementing sustainability practices in new markets Lax environmental legislation in developing markets makes it difficult to implement sustainability practices there Compensate outside these countries and gradually introduce sustainability practices within these countries Accommodating e-commerce in operations E-commerce is a threat to the express business which depends on document delivery. Expansion into this sector in order to maintain revenue flows Influencing third parties to adopt sustainability practices Logistics firms are dependent on external parties and need to influence them to adhere to sustainability practices. Integrate suppliers and subcontractors into sustainability activities and operations. Complying with regulation Firms need to ensure regulatory compliance through a wide variety of mechanisms. Partner with third parties, clients, governments etc. to ensure compliance. 3 Challenge Description Industry response Source: Datamonitor D A T A M O N I T O R The logistics and express market is fast growing in developing economies like India, China and Brazil. As a result, companies are expanding into these largely untapped territories. However, implementing sustainability practices in these new markets will be a difficult task considering the minimal levels of legislative support that is available when compared to developed countries. For the most part, companies will have to compensate excessive emissions in developing countries with its operations outside initially, and gradually initiate their sustainability practices in their operations in developing countries over the next few years. A large part of express business comes from the delivery of documents like bills etc. However, the advent and growing popularity of e-commerce among consumers means that express companies will have to integrate e-commerce services into their offerings in order to stay competitive and offset the loss of revenues. This could also prove a more sustainable option due to reduction of transport emissions. Sustainability Challenges in Transport and Logistics A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 11 Subcontracted operations and suppliers play a large part in the activities of logistics firms. As a result, for a logistics company to truly reduce emissions, they have to take into account these operations as well. Influencing these third parties is therefore a large challenge for logistics firms, as a lot of them may not share the same values, especially when there is no direct regulatory pressure. Thus, most logistics firms have begun to integrate suppliers and subcontractors into their sustainability programs. Ensuring compliance will be a long road ahead with considerable cooperation and negotiations needed to move forward with the same. Increasing regulatory pressure, both direct and indirect, on logistics firms to reduce emissions has meant that compliance has become a major challenge for the industry. Practices such as participation in emission trading schemes and use of high efficiency and low emissions transport mechanisms have become more commonplace among logistics firms. However, implementation of some of these measures gives unique challenges within themselves. For example, while it is easier to convert a road fleet to electric or other alternative propulsion technologies, there are no such options when it comes to air or marine fleets. However, meeting both emissions targets and customer expectations on timely delivery is a significant hurdle that logistics companies and their partners will have to deal with. Companies in the logistics sector are partnering with governments, industry organizations, and players across various industries to help meet these sustainability challenges. Regulatory framework impacting sustainability in logistics While there are few regulations aimed directly at sustainability in the logistics industry, the broad scope of most transport and emissions regulations has meant that the logistics industry has been indirectly impacted by such legislations. Of particular importance are the EU schemes on road vehicle emissions and emission targets for the aviation sector, both of which have forced logistics firms to rethink their transport network strategy. When it comes to sustainability regulation in aviation, both the International Civil Aviation Organization and International Air Transport Association have been looking to create a common approach and set targets to reduce emissions in the industry. While this has not gone much beyond the planning state, the EU has already jumped ahead and set up emission targets for the sector in 2009, at 10% below 2005 levels by 2020. These will be further reviewed and strengthened in 2013. The consequence of this is that logistics firms have to try to increase the efficiency of air freight as well as reduce the use of the same. The EC has also released a set of strategic objectives for the maritime transport sector until 2018. The objectives call for increase efficiency and research into environmentally sound marine transport. There are also a slew of measures underway to standardize road transport pricing in the EU. The objective is to create more even balance between road and rail by providing incentives for rail transport. Developments in rail and maritime transport due to such legislation could help logistics firms restructure their transport network, use a greater amount of less carbon intensive technologies in rail and marine transport, and a use a smaller amount of road and air transport. The EC has also implemented several "greening transport" initiatives to promote sustainability within transport and to make sure costs reflect integral cost to the society. There have also been many localized laws passed across the globe that put additional taxes on high-polluting vehicles, increase tolls for heavy goods vehicles and so on. Countries have also created financial incentives like grants, subsidies, and low taxes and low-interest loans for low emission vehicles, as well as lowering duties on alternative fuels. Sustainability Challenges in Transport and Logistics A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 12 Schemes similar to the EU ETS and cap and trade schemes are also coming into effect across the globe. The EU ETS is a scheme for greenhouse gas emission allowance trading. While the first phase of the scheme, running from 2005 to 2007, looked at heavy industries and service providers like utilities, the second phase, which runs from 2008 to 2013, includes the aviation sector. This means that logistics firms have to monitor and report data on their aircraft regularly. There have not been many comprehensive national-level schemes; however, the UK became the first country in the world to introduce a climate change act in 2008. In order to help organizations meet the set targets, the Carbon Reduction Commitment (CRC) was set up. The CRC is a carbon emissions trading scheme for large non-energy-intensive organizations. Large logistics firms therefore fall squarely within the purview of the scheme. Companies are ranked in a performance league table along three metricsrelative change in absolute emissions, emissions change relative to revenue and voluntary actions prior to the CRC. Assessment of Maersk's Sustainability Efforts A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 13 ASSESSMENT OF MAERSK'S SUSTAINABILITY EFFORTS Scope and main programs Being the largest container shipping company in the world, the business activities of Maersk tend to impact the environment on global, national, and local levels. Among the various other pollutants that can affect the environment, greenhouse gases are the most important environmental issue. Due to the growing importance of these issues, the group has allocated resources to understanding and minimizing the environmental impact of its activities. The following section highlights the various measures taken by the group to portray the sustainability initiatives and the impact felt by the group due to these measures. Emission control strategy Dealing with emissions is a priority for any logistics and transportation organization and a company on the scale of Maersk needs to have a strategy map to deal with this issue. Despite the fact that ships emit the CO 2 shipping is one of the most climate friendly ways to transport goods. About 90% of the goods are transported via ships. According to a recent study by the UNs international Maritime Organization (IMO) regarding fuel consumption and CO 2 emissions, it has been noticed that about 4% of global energy related emissions are from ships. Despite ships being the lowest emitter of greenhouse gases compared to other modes of transport, Maersk has started slow steaming to further reduce emissions from ships. Although, this practice was introduced to reduce costs during tough economic times, it helped the group in the reduction of emissions. It has been noticed that with a reduction of speed by about 510%, CO 2 emissions and fuel consumption reduce by 15%. This initiative has been introduced on a number of Maersk Line and Safmarine routes. Maersk has also initiated a process to introduce a new propeller design to be installed on its ships. According to Sistemar, the designer of this propeller, this allows reduced tip vortex, reduced cavitations, and improved maneuvering, and most critically of all, increases efficiency by 58% compared to conventional propellers, in turn reducing emissions by 58%. This new propeller has been installed on one of Maersk's ships and the new propeller design has proved to be more efficient than conventional propellers in terms of reduced fuel consumption and emissions in addition to reduced vibrations onboard. Aside from slow steaming, a few other initiatives have been taken by Maersk to reduce greenhouse gas emissions. Table 4 lists other measures undertaken by the group to achieve high standards to reduce emissions. Table 4: Maersk: other sustainability measures Program Description Waste heat recovery system This system saves fuel by about 810% at optimum conditions and has been implemented on 32 ships in total, of which six were fitted along with the system in 2008, making Maersk the worlds leading shipping company in this area. Quest project This involves installing software in containers to reduce consumption of cooling, and has been very effective in reducing CO 2 emissions. Voyage efficiency system This program was developed by Maersk to plan voyages and is used on most ships to identify the most fuel-efficient route, and a just in time strategy is used to minimize the engine load. Source: Datamonitor D A T A M O N I T O R Maersk previously carried out a strategic climate change initiative, which is a program that is focused on developing responses to the emerging environmental agenda. The outcome of this was the introduction of a strategy call Eco- Assessment of Maersk's Sustainability Efforts A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 14 Efficiency to improve efficiency through innovation and technological advances without affecting the environment. This involves three phases. In phase 1, the objective is to identify and assess the vital activities and environmental impacts of each business unit. After the identifying the impact, comparing it with the concerns of each stakeholder in each business unit forms the next step, and lastly these issues are classified as high, medium, and low levels of concern. In phase 2 the objective is to identify different scenarios that could help the group develop long-term strategic solutions. This involved three main issuescritical drivers linked to environmental issues (energy, supply and demand, policies and regulations, energy prices and so on), identifying major sources of uncertainty, and developing various circumstances as combinations of drivers. Lastly, in phase 3 the purpose is to develop a number of long-term strategies to deal with the future scenarios that have been identified in phase 2. This initiative involves communication with stakeholders, due to which confidence in the organization tends to improve among stakeholders. These strategies also help in identifying both threats and opportunities connected to environmental concerns and help the group to plan its programs in accordance with these concerns. With the introduction of all the above efforts to reduce the amount of greenhouse gases emitted by different business units, it was noticed that the firm's total greenhouse gas emissions for 2009 were close to 45 million tons CO 2 equivalent. This is a decrease of about three million tons from 2008. Greenhouse gas emissions were reduced by about 7% in 2009 from 2008. Considering the size of the operations for Maersk as a group, this reduction is moderate and is commendable. Ship recycling and waste handling Ship recycling provides an opportunity to reuse or recycle a considerable amount of the equipment of a ship. Roughly two thirds of processing energy can be saved or reduced by recycling old steel to produce new steel. Copper cables and aluminum can be used in a similar pattern. Although the concept of ship recycling is positive, the working practices and environmental standards in some yards may be dangerous. New international regulations will require ship owners to equip their new and existing fleet with a list of the hazardous materials they contain. Maersk began to equip ships with these inventories since 2007, starting with new ships. In the past Maersk has sold ships before the end of their service life, due to which recycling of ships has not been essential. Regardless of this practice, ships in the facility have been designed and built to ensure a high recycling ratio. A state-of-the- art recycling facility in China with ISO 14001 and OHSMS 18001 certifications is being used for all the ship recycling in Maersk. A Green Passport is a document containing an inventory of all materials potentially hazardous to human health or the environment that is used in the construction of a ship. Though not authorized yet, this is a must for all green ship owners. In 2007, Maersk listed all the hazardous materials used in shipbuilding. Currently, two liquefied natural gas ships and four Maersk Line Limited (US) ships have received a Green Passport. The Green Passport is displayed in the ship throughout its life and ensures that dismantling of a ship can be conduced in an environmentally friendly manner. Maersk has taken this initiative to prove that it is a step ahead of most of the other industry players in supporting sustainability. This approach of disclosing the inventory of hazardous material used in shipbuilding reduces environmental impact (for example, no discharge of toxic waste, proper dealing with asbestos, no oil spills, recycling of all recyclable materials, and so on), and also ensures a safe and secure working environment for shipyard recycling staff. Apart from the sound recycling of ships, Maersk also addresses the concern of waste handling on ships. Ships produce different kinds of waste, like oil waste, sludge, and various other hazardous substances. The group has implemented a Assessment of Maersk's Sustainability Efforts A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 15 waste management program to handle the waste stream in an environmentally friendly manner. It has also reduced the waste generated and improved the waste handling procedure. A new sludge and waste management system has been introduced to comply with ISO 14001 environmental standards. With this system, stakeholders can access information in major ports and these ports are rated depending on their service level and ability to handle sludge and garbage in an environmentally friendly manner. Approximately, a total of about 6,400 tons of waste has been collected in 2008 from DUCs offshore operations. All waste collected offshore is segregated and taken onshore for additional sorting, and then it is recycled, incinerated, or disposed off at landfills. About 62% of waste collected was recycled and 37% was incinerated. The waste that was transferred to the landfills was about 1%, consisting of welding slag, treated wood, gypsum boards, and so on, for which currently there are no other treatment options. In 2008, Maersk Drilling and Maersk FPSOs generated a total of about 2,700 tons of hazardous waste and 2,400 tons of non-hazardous waste. About 1,500 tons of waste is recycled a year, corresponding to a recycling factor of 29%. All Maersk ships have a garbage management plan on board, and segregation of garbage is carried out on each ship. Since 2007, all of the containers have adopted a zero dumping policy onboard, which prohibits the disposal of any unprocessed non-biodegradable solid waste into the ocean. Residue from ships that are equipped with waste incinerators is disposed off on land. Additionally, a large number of ships have implemented a garbage recycling program onboard. Sewage is kept in holding tanks until it can be disposed off in an environmentally friendly manner or processed at a treatment plant. Some container ships are equipped with a three-phase biological sewage treatment system that ensures effective treatment of sewage prior to its discharge. The introduction of a garbage management plan ensures that recyclable waste is not disposed of but instead reused. Assessment of Maersk's Sustainability Efforts A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 16 Other sustainability initiatives and CSR programs Generally, ships carry ballast water to provide momentum to resist lateral forces. Often ballast water is collected in from the coastal waters in one region and is discharged at the next port, where the cargo is unloaded. During this process a variety of marine life, like plants, animals, various microorganisms, are displaced, causing extensive damage to the aquatic ecosystem. To assure safe handling of ballast water, the group has established ballast water management plans and ballast water logs on all their ships. The group also tries to reduce the use of ballast water and perform internal and mid- ocean ballast exchange wherever necessary. Health To assess, register, and monitor the health-related risks associated with chemical, physical, ergonomic, and biological issues at the workplace, the Group Health Manual, has been created to be implemented in 2009. All business units of the group are required to be in compliance with this manual by 2010. This could improve working conditions, noise, exposure to potentially hazardous substances, and air quality. The groups policy also necessitates them to be in accordance with the national statutory requirements in health management. Safety Since the groups major business unit is container shipping, the working conditions on board ships, port terminals, and so on are quite harsh. The group therefore, to protect the safety of employees at the workplace, finalized the implementation of the Group Health, Safety, Security and Environmental Manual in 2009. Due to constant effort to reduce deaths at the workplace, there was a decline in the number of fatalities in 2009. This represented a 25% improvement in 2009 compared to 2008. Work-related injuries came down by about 6% in 2009 compared to 2008. Despite these measures, the group had 15 work-related deaths in 2009 and is now heavily focusing to reduce such accidents. Apart from work-related injuries and deaths, the crew also faces significant threats from piracy. In 2009, five of the groups ships were attacked, and one of the ships' captains was briefly taken hostage. Now, as a precaution, most of the ships that sail through the Gulf of Aden (the five attacks were on this route) use a convoy system. Anticorruption Maersks legal department has established a set of policies, known as the Group Anti-Corruption Compliance Program, through which employees can handle any situation where a business opportunity poses extreme external pressure. These policies include detailed guidelines, training sessions, and feedback collected on any required improvement. Maersk CSR activities Building container schools after Chinese earthquake After the earthquake in Sichuan, China, Maersk helped to rebuild the region. It donated 52 Maersk Line containers to rebuild a school. This enabled around a thousand local school students to resume their studies almost immediately. For its commitment to helping the earthquake-stricken place, it received the Best CSR Initiator for Chengdu award at the first Corporate Social Responsibility Annual Conference of China at Chengdu. Containers in the Community, South Africa Assessment of Maersk's Sustainability Efforts A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 17 Since the 1990s, Safmarine has provided containers in South Africa through its Containers in the Community program. Safmarine provides recycled second-hand or end of life containers to provide for the infrastructure at schools, clinics, and so on. Almost 7,000 containers have been donated so far through this program and about 1,800 projects were undertaken. Habitat for Humanity In 2006 Habitat for Humanity and Maersks US organization have collaborated to help low-income families to possess their own homes. Since the inception of the partnership, the group has provided logistics and transportation help to build over a hundred homes. SWOT Analysis A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 18 SWOT ANALYSIS The SWOT analysis of Maersk is given in Table 5 below. Table 5: Maersk: SWOT analysis Strengths Weaknesses Worlds largest container industry High employee productivity (per industry standards) Adoption of Green Passport Implementation of voyage efficiency system Poor performance of major business divisions Sluggish cash flow Opportunities Threats Diversifying into other business areas Green Ship of the Future project Long-term CO 2 emissions target New propeller design Dependency on container shipping industry Piracy threat to maritime shipping Negative impact on the environment Regulatory pressure on the industry to reduce emissions Source: Datamonitor D A T A M O N I T O R Strengths Worlds largest container shipping industry Maersk group operates a large and balanced fleet. The group's global network comprised 531 owned and chartered container vessels with a total capacity of 2.1 million twenty-foot equivalent unit containers as of December 31, 2009. In FY2009, the container shipping and related activities division operated through 253 owned container vessels and 17 multipurpose vessels. Maersk Tankers operated through 102 owned vessels, of which 10 were large oil and gas carriers, 81 product vessels, and 11 gas vessels. It also operated through 62 chartered vessels. High employee productivity The companys total revenues were about $48.5bn for the year of 2009. For the same year, the workforce was about 115,000 strong. Compared to the other players in the industry, Maersk has the advantage of having greater revenue per employee ratio, which translates into greater productivity on the part of its staff. Adoption of Green Passport The Green Passport is a document containing an inventory of all materials potentially hazardous to human health or the environment used in the construction of a ship. Since 2007, Maersk has listed the inventory of all the hazardous materials used in its ships. Two of the firm's liquefied natural gas ships and four Maersk Line Limited (US) ships have already received a Green Passport. SWOT Analysis A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 19 Voyage efficiency system This program was developed to plan voyages and is used on most of the firm's ships to identify the most fuel-efficient routes, with a just in time strategy used to minimize engine load. Weaknesses Poor performance of major business units Maersk has witnessed a decline in the sales of its major business divisions. Out of six business divisions, three witnessed a decline in their 2009 sales. Container shipping and related activities, the largest business division of the group, reported a 24.4% decline in its sales in 2009 from 2008. Retail, which is the second largest division of the group, witnessed a 1.7% decline in its sales for the same period. Similarly, the oil and gas department reported a 29.6% decline in its sales in 2009. The decrease in sales across these business divisions was due to lower freight rates for container shipping and lower average oil prices. As a result, the group generated revenues of $48.8bn during 2009, a decrease of 21% compared to 2008. Therefore, the poor performance of major business divisions affected Maersk's financial performance. Sluggish cash flows Maersk witnessed a decline in its cash flows in 2009. The cash and cash equivalents of the group declined by 38.9% in 2009 compared to 2008, to reach $1.6bn. This was mainly attributed to net cash provided by operating activities decreasing by 42.2% to reach $4,460m in 2009. The net cash provided by operating activities decreased as a result of lower earnings. A sluggish cash position implies inefficient cost management. A continuation of this trend could reduce the availability of resources for the group to pursue growth plans Opportunities Diversifying into other business areas To capture the full potential of the logistics industry and to reduce its dependency on container shipping business, Maersk could explore the opportunity of expanding into the mail and express arms of the logistics industry. Since they are among the biggest shipping industries, expanding into these areas would not be a difficult task. With this expansion, it could offer customers point-to-point delivery options, which are currently not among the company's strengths. Green Ship of the Future project Maersk, along with Odense Steel Shipyard, MAN Diesel, and Aalborg Industries, was involved in initiating the Green Ship of the Future project in Denmark in 2007. The Green Ship of the Future forum has since then grown to about 20 participants and is coordinated by Force Technology and Technical University of Denmark. The partners strive to create innovative solutions to reduce the impact on the environment of ocean freight. This initiative could help Maersk reduce its emissions to a great extent and become an industry leader in sustainable innovation. SWOT Analysis A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 20 Long-term CO 2 emissions target Aside from the initiatives that the group is taking to reduce emissions, it has also set a target of reducing emissions by 10% in 2012. Additionally, Maersk Line has set a target to lower emissions by 20% during the period 20072017. The groups current emission reduction programs allow it to achieve this target. New propeller design A new propeller design by Sistemar, contracted loaded tip (CTL), is being tested on Maersk ships. This new CTL propeller could reduce air emissions and fuel consumption by up to 8%. It has been tested on one ship so far, and successful results could encourage the group to install this on all of its ships, which could reduce their emissions significantly. Threats Dependency on container shipping In 2009, the container shipping industry delivered almost 42% of the group's revenues. Due to the highly volatile nature of the economy, this high dependency on the container shipping industry might be a problem in the future for the group. Piracy threat to maritime shipping According to the International Maritime Bureau (IMB), piracy incidents on the high seas saw an annual increase of nearly 40% in 2009. Pirate activities off the coast of Somalia accounted for more than half of all attacks worldwide. The number of attacks off the coast of Somalia increased from 111 in 2008 to 217 in 2009 of which 47 were successfully hijacked. According to IMB figures, Somali pirates have successfully hijacked seven vessels since January 2010, after attacking 32 ships. Maersk has also been affected by piracy attacks. The group's Maersk Alabama was seized in the Indian Ocean in April 2009. The vessel was deployed in Maersk Line's East Africa service network and was en route to Mombasa, when it was attacked. Somali pirates again attacked the vessel in November 2009. Shipping companies are faced with the risk of paying a ransom of around $75100m for pirates to return a ship. Therefore, the repetition of such attacks could have a negative impact on the group's business. Negative impact on the environment As the transportation and logistics industry contributes almost 13% of global emissions, it will always be a target of drives to reduce pollution. Due to the continuous pressure on these firms by the government, NGOs, and their supply chain, this industry has to strive towards reducing emissions, which could potentially translate into higher costs for the company. Regulatory pressure on the industry to reduce emissions As a firm that is involved in multiple industries, including retail, oil, and drilling activities, Maersk is subject to many regulations from both national and international agencies. This includes emissions reductions mandated by local and international law for their vessels and oil and drilling activities. For the most part, such regulations and obligations will increase the operating costs of the company and adversely affect profitability. Conclusion A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 21 CONCLUSION Maersk, being the largest container shipping industry in the world, has committed itself to helping and building a safe environment for the future by responding to environmental concerns in an effective manner. The group has started programs such as Green Ship of the Future, slow steaming, and Quest in order to reduce the emissions significantly. In actual emissions, the group has reduced greenhouse gas emissions by about 7% of CO 2 equivalent in 2009, and is trying to achieve reduction targets of 10% by 2020. The waste heat recovery system that is being used has helped reduce fuel consumption by about 810% at optimum conditions. Since 2008, this system has been used on 32 ships. Ship recycling is another initiative undertaken by the group, which involves making the use of metals in ships more efficient. All Maersk ships are built with a high recycling ratio. Due to sound waste management practice on board, about 1,500 tons of waste is recycled a year, which corresponds to a recycling factor of 29%. Green Passport is another initiative that is being followed by the group, involving safely dismantling ships in an environmentally friendly way. A zero-dumping policy and garbage management plan ensures that the recyclable waste that is produced on ships is not dumped, but reused. Appendix A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 22 APPENDIX Carbon Disclosure Project (CDP) Launched in 2000, CDP is an independent, non-profit venture that tracks the climate change information of corporations around the world. Organizations from across major economies around the world voluntarily measure and disclose their greenhouse gas emissions and climate change strategies through the CDP, allowing them to look at the industry best practices and compare themselves against their peers. Around 3,000 organizations across 60 countries use the CDP to measure and disclose their greenhouse gas emissions and climate change strategies. The CDP also has a separate supply-chain program that measures the impact of climate change measures in the supply chain. The following section provides an overview of carbon disclosure score as defined by CDP. Carbon disclosure score Carbon disclosure score reflects a companys comprehensiveness in terms of the depth and breadth of its CDP response. The score is normalized to a 100-point scale and is based solely on the information disclosed in the companys response. A high score suggests good internal data management and understanding of the issues climate change presents to the companys business. It is not a metric of a companys performance in relation to climate change management since the score does not make any judgment about mitigation actions. Companies scoring within a particular range suggest levels of commitment to, and experience of, carbon disclosure. The section below provides an indicative description of these levels. However, it is important to read individual company responses in order to understand the context for each business. High (>70): A high score typically indicates one or more of the following: Strong understanding and management of company-specific exposure to climate-related risks and opportunities Strategic focus and commitment to understanding the business issues related to climate change, present at the top of the organization Ability to measure and manage the companys carbon footprint Regular and relevant disclosure to key corporate stakeholders Midrange (5070): A midrange score typically indicates one or more of the following: Growing maturity in understanding and managing company-specific risks and potential opportunities related to climate change Good evidence of ability to measure and manage carbon footprint across global operations Commitment to the importance of transparency Low (<50): A low score typically indicates one or more of the following: Relatively new commitment to understanding climate-related issues Appendix A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 23 Limited ability to disclose known risks or potential opportunities related to climate change Limited ability to measure and manage the companys carbon footprint Possible reluctance to disclose certain requested information due to commercial sensitivity Scoring methodology The rating methodology used to rate companies in Carbon Disclosure Project 2010 Global 500 Report was jointly developed by CDP and its global advisor PWC. The carbon disclosure rating: Is based solely on the disclosure information provided in the companys CDP response Suggests good internal data management and understanding of the issues climate change presents to the companys business Does not consider other carbon or wider sustainability disclosures provided by companies through corporate responsibility reporting, environmental statements in annual reports, or through meetings and engagement with stakeholders and policymakers Is not a metric of a companys performance in relation to climate change management, as it does not make any judgment over absolute levels of emissions, emission reduction achievements, or carbon intensity The carbon performance score, meanwhile, is a new metric that is being used in CDP and will continue to develop over future reporting cycles: Performance points are awarded where a company highlights that it is undertaking, or has undertaken, a positive climate change action. A positive action is one that contributes to climate change mitigation, adaptation and transparency. It is limited in its consideration of the materiality of actions relative to a company's sector and business. Answers are considered equally, irrespective of sector. It is based solely on activities and positions disclosed in the CDP response. It therefore does not consider adverse or negative actions not mentioned in the CDP response. It is not a comprehensive metric of the level to which a company is low-carbon or green but rather an indication of the level of action taken by the company to manage its impact on, and from, climate change. Appendix A.P. Moller - Maersk Sustainability Case Study EN00001-003/Published 12/2010 Datamonitor. This brief is a licensed product and is not to be photocopied Page 24 Further reading Datamonitor (2010) UPS Sustainability Case Study, December 2010, EN00001-004 Datamonitor (2010) TNT Sustainability Case Study, December 2010, EN00001-006 Datamonitor (2010) DHL Sustainability Case Study, December 2010, EN00001-005 Datamonitor (2010) A.P. Moller-Maersk Group Company Profile, 21 June 2010 Ask the analyst The Energy & Sustainability Knowledge Center Writing team asken@datamonitor.com Datamonitor consulting We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you have further requirements, Datamonitors consulting team may be able to help you. For more information about Datamonitors consulting capabilities, please contact us directly at consulting@datamonitor.com. Disclaimer All Rights Reserved. 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