Few executives have a better insight into the state of the world economy than Vincent Clerc, CEO of ` Moller-Maersk
.
Clerc, head of the world’s second largest container shipping group, took over in early 2023 just as shipping rates were plunging from Covid pandemic highs.
Maersk hopes that an expansion into land-based logistics and e-commerce will pay off. It is also preparing for the end of its alliance with Mediterranean Shipping, the world’s largest container shipping group, in 2025.
Barron’s spoke to Clerc on February 28 on the sidelines of Mobile World Congress in Barcelona about the outlook for the global economy, US-China tensions and the potential of artificial intelligence.
An edited version of the conversation follows.
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Barron’s: Is the US Economy Heading for a Recession?
Vincent employee: Consumption is holding up remarkably well and the specter of a recession in the US and Europe is fading – particularly in the US, payrolls are a great leading indicator. When you feel the job market is good and you have a job, you are more likely to spend money than when you feel the job market is bad and afraid of losing your job.
So as long as the labor market remains healthy, as seems to be the case at the moment, the risks of a recession have receded.
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We want the Federal Reserve and central banks around the world to tackle inflation comprehensively before it becomes too ingrained. At least some of the signs we are seeing on inflation seem to point to an easing, which is positive.
Is globalization on the retreat?
I don’t believe. A world where we think we can live alone and have no common destiny is a pipe dream – or maybe a nightmare.
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Countries have realized that you cannot be naively global. Certain things are key to national security, whether it’s energy or chips or whatever. There is a need for market intervention by states and possibly regionalization of part of the supply chain. But much of the infrastructure is global, and industries like auto and apparel manufacturing will continue to rely on global networks.
Will China’s reopening avert a global recession?
There have been many theories about a strong recovery in consumption in China after reopening, and we haven’t seen them yet. So after two years there is some catching up to do there is catch-up potential.
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Things will normalize at a higher level of activity. How much relief this will bring to the global economy would depend on the strength of the recovery as it unfolds. It will probably be a story for the second half of the year.
Are US-China tensions a harbinger of a new economic cold war?
Despite the fact that tariffs have been in place for many years, the US has never had such a large trade deficit with China as it did last year. So the trade is still going on.
We’re seeing flares in some strategic materials, semiconductors, and things like that. But a lot of the things we trade, like clothes, shoes, home improvement items, and the like, aren’t the stuff the US and China have trouble with. The US consumer needs these products on the shelf and the infrastructure is in place today to manufacture them.
Is China still viable as a world factory and key supplier?
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Supply chains are longer than you think. There is no longer a manufacturer who can turn a raw material into a finished product. Different layers of suppliers work together. Supply chains are vertically integrated, be it furniture manufacturing, apparel manufacturing, etc.
We have seen gradual diversification – for example into Vietnam for certain commodities. But we’ve also seen companies like Apple struggle to find the level of scale and expertise they want outside of China. So this transition is happening, but it’s not happening at the speed that you might think at times.
As a technological revolution, is AI on par with the Internet?
We are still at the beginning of what AI can do and there are many ethical questions. We understand the impact of steamboats and steam in the industrial revolution because we have to go back 150 years to understand what made it possible, including global warming.
AI pushes the boundaries. How far [it goes] is something we need to see over time. It’s one thing to know something is going to happen; It’s even better if you can give concrete suggestions for dealing with the disorder at the same time. Ultimately, I would expect AI to challenge much of what is now considered common knowledge.
Shipping is an energy-intensive business. What are your pollution reduction goals and when will you achieve them?
We have committed to be carbon neutral by 2040. We put a lot of energy into making sure that this is not just an empty promise, but something we will keep.
The supply chain is a high carbon intensity business. It contributes to the effects of climate change. We have ordered 19 ships that will run on green methanol. We’re done ordering ships that run on oil and carbon.
[The transition] is a complex and lengthy process. The technology is there; That is the good news. What we need is the scaling of capabilities to be able to innovate our network on a green basis.
Why doesn’t Maersk use carbon offsets?
It is not a scalable solution and does not solve the problem. If we don’t get to the root of the problem, the rest is just makeup.
The shipping costs decrease. What is Maersk’s strategy after the pandemic?
Our transformation takes us from a pure shipping and terminal company to a broader logistics integrator. We started the journey in 2017. That was compounded by the pandemic, but the fact that we had already invested two or three years into our transformation when the pandemic struck gave us a platform. What you are seeing is a gradual expansion of the networks we operate internationally, all the way to the last mile.
When talking to customers, many of them are considering switching from air to sea transport because of the carbon footprint and costs. When demand suddenly increases, you tend to [use] Air freight more because you are trying to catch up with consumers. If you have an inventory correction, you will see the opposite. You see a transformation from air to ocean. My expectation is that in a few years we will see a lower share of air freight than today.
Thank you Vincent
Write to Adam Clark at [email protected]
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