Full Transcript of CFO StudioLIVE: Interview with Andreas Brauch, CFO, Hapag-Lloyd
Andrew Zezas:
Welcome to CFO StudioLIVE, part of the CFO Stay Connected Initiative, an intelligence platform designed by CFO Studio to assist CFOs in remaining connected to peer CFOs and the highest-caliber service providers. CFO StudioLIVE, presented by CFO Studio, offers livestream real-time interviews with highly accomplished CFOs from prominent New York Stock Exchange, Nasdaq, and large privately held companies and notable tax-exempt organizations doing business in North America. In dynamic interviews, CFOs discuss their companies’ challenges and successes, share insights on important issues facing their industries, employees, or the economy, and offer their thoughts on business across the country and around the globe.
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Good afternoon. I’m Andrew Zezas, publisher and host, CEO of CFO Studio. We have a very dynamic, very interesting dialogue today with our CFO StudioLIVE guest. Before I introduce him, I wanted to share with you information on some upcoming events. On July 21st, we’ll be interviewing the CFO of PwC, Martyn Curragh, here on CFO StudioLIVE. Also on CFO StudioLIVE, on July 29th, we’ll interview Paul Henrys, CFO of Feeding America. With what’s going on in the world these days, feeding people who need to be fed has become a very very important and integral part of what’s going on both here in the U.S. and elsewhere. On August 11th, we’ll interview here on CFO StudioLIVE Leonard Williams, CFO of The Nature Conservancy.
We have other CFO live interviews about to be scheduled with CFOs of Conagra, Jaguar Land Rover, Gogo Air, Horizon Blue Cross Blue shield of California, IFF, NBCUniversal, and a host of others. We’re very very excited about the folks who have agreed to participate with us in CFO StudioLIVE.
Also, on July 15th at 5:15 PM, join us for the Middle Market CFO Discussion Series, Imperative Issues Affecting People and Business, a CFO discussion on health, diversity, and the global economy. That’s an open round table dialogue series where all CFOs who participate in the discussion will be on camera. It promises to be a very interesting, very dynamic, and certainly a very timely discussion, so please join us. You can register at cfostudio.com to reserve a seat.
I’d like to introduce you to today’s CFO StudioLIVE interviewee, Andreas Brauch. Andreas is the CFO of Hapag-Lloyd North America, which includes the U.S. and Canada operations. Andreas is responsible for FPNA, finance, accounting, treasury, legal and compliance, tax, IT and business systems, and heads a team of 110 staff based in Piscataway, New Jersey, and in Atlanta, Georgia.
Andreas started his current position as Hapag-Lloyd NACFO in March 2020. Since then, Andreas has been largely operating from his home office, as have we all. Prior to coming to the U.S., Andreas was responsible for global FPNA in Hapag-Lloyd’s corporate headquarters in Hamburg, Germany. Andreas joined Hapag-Lloyd in 2017 and has led several strategy and integration projects.
Andreas started his career as a management consultant for Roland Berger, focusing on strategic and financial restructuring across several industries. While at Berger, he worked on a number of strategy and PMI projects based in Munich, London, and Boston. Andreas has a master’s degree in international management from the top French business school, ESCP, which has locations in Paris, London, and Berlin.
A little about Hapag-Lloyd. Hapag-Lloyd is one of the world’s leading liner shipping companies, one of the top five container carriers. It is a traditional Hanseatic firm with roots dating back to 1847 when the Hamburg American Line was founded. The company has had significant growth in the last five years through two large mergers with competitors from Chile, which was CSAV, and the Arabian Peninsula, UASC.
Hapag-Lloyd has a fleet of 248 modern container ships and a total transport capacity of 1.7 million twenty-foot equivalent units or TEUs, which is a standards 20-foot container. The company has around 13,000 employees and 394 offices in 129 countries. Hapag-Lloyd has a container capacity of approximately 2.6 million TEU, including one of the largest and most modern fleets of reefer containers. Hapag-Lloyd has a total of 122 liner services worldwide that ensure fast and reliable connections between more than 600 ports and in all the continents. Hapag-Lloyd is one of the leading operators in the Transatlantic, Middle East, Latin America, and intra-America trades.
A little more about Hapag-Lloyd. The company has approximately 1,200 employees in North America, this is specifically about the North American branch, and they’re spread out over a dozen offices. Its North America headquarters are located in Piscataway, New Jersey, and it accounts for a large part of Hapag-Lloyd’s global business and a large number of global customers. Hapag-Lloyd North America’s export commodities include agricultural products and foodstuffs, chemicals, paper, and forest products. Its main import commodities include foodstuffs and beverages, chemicals, machinery, plastics and rubber, furniture and textiles.
Today, Andreas Brauch will share his insights as to the macroeconomic impact of the current business climate and Hapag-Lloyd’s business response, as well as the company’s COVID-specific response to health and wellbeing in North America. Andreas’ discussion today is entitled Supply Chain, Container Shipping, and COVID-19. It gives me great pleasure to introduce you today to CFO StudioLIVE’s interviewee, Andreas Brauch, Chief Financial Officer Hapag-Lloyd North America.
Andreas, good afternoon. It’s so nice to have you here on CFO StudioLIVE.
Andreas Brauch:
Thanks a lot, Andy. Really a great pleasure to be there.
Andrew Zezas:
I know how busy you are and I know what a challenge it’s been to take on the role of CFO in the middle of a pandemic and to be operating out of your home office, so I’m grateful that you agreed to be interviewed with us and take the time to join us today.
Andreas Brauch:
It’s my pleasure.
Andrew Zezas:
We’re in a crazy time. There’s been an awful lot going on, as we all know. Health crisis, business crisis, civil unrest. The Chinese say, “May you live in interesting times.” I hope that when we look back we can consider this to be an interesting time, but I do believe that, aside from the human part, which is very very difficult for a lot of people who’ve taken ill and those who’ve lost loved ones, aside from that very important component of what we’ve been dealing with, I do believe that business is going through an evolution. All parts of business, from people and employment to supply chain and everything in between. These challenges have forced us to look at things differently. They’ve forced us to take different technologically-based approaches to what were very basic human-to-human business communication efforts, and so on.
But I do believe that there’s more struggle in front of us and there’s probably more pain on the business side, but at some point in the future when we look back, I do believe that, from a business perspective, U.S. and global commerce will, ultimately, be better off as a result of what we’re going through and what we will go through. I do believe that there will be a lot of hard work, there will be some difficulties, but I think, ultimately, things will get better. Call me an optimist.
Let’s talk about Hapag-Lloyd and the specific challenges that the company has gone through. In the last four or five months, share with us what Hapag-Lloyd has done to keep its employees safe and to keep the business running.
Andreas Brauch:
First of all, let me say that I very much echo what you said, in terms of us looking back one day on this period and hopefully not only with sorrow and grief but also seeing that as some sort of inflection point, that we really used this strange and weird times to really make a lot of things better and to leverage the lessons learned that we certainly have gathered now in the future, as well.
As you said in your kind introduction, I mean, I came here to the U.S. in the beginning of March. I think my second week in the office, we basically decided to get everybody to work from home. As you said, it’s not only us here in Piscataway, New Jersey, but we have a dozen large offices around North America. We have a pretty sizeable quality service center in Georgia. All of that, basically, we had to transition from our standard way of working to working from home.
We were mainly lucky that our industry, container shipping, was immediately deemed one of the essential industries because we help to keep the supply chain running to get all the essential stuff to people that they need. Therefore, we were able and we had to keep the business running. So, from a business perspective, that was very good. At the same time, it also posed some challenges because to keep the business running, people need to be able to work, as well. For us, it was relatively quickly obvious that we couldn’t just keep everything running from the offices just because our top priority has been and will be to keep employees safe. We have to find a way to do that remotely.
Shipping is a fascinating industry. It’s not the most digital industry, if you will. So, we couldn’t just, “Everybody pack up their laptops and work from home.” We had some more work to do to really have the IT infrastructure, the tools, to make that happen. We scrambled quite hard to get the hardware, to get the VPN concentrators that we needed, to accelerate the rollout of MS Teams, to really make sure that we can not only function but that we function at a level that our customers deserve and expect from us. I think that went relatively well.
It also helped that we had very solid business continuity plans, especially in Atlanta in our service center, where a lot of the direct intervention with the customers happen. But at the same time, both in North America but also globally, you could talk about business continuity plans, emergency plans, and so on, but the underlying scenario was always like, “There’s going to be a hurricane. There’s going to be an electricity crisis. There’s going to be some sort of terrorist attack,” which is rather localized, but nobody had a plan for a global pandemic that would not only shut us down here in North America but the same thing in Europe in our corporate headquarter. In India, where we have very large service centers, as well, that basically was on no one’s underlying scenario.
So, that was a bit the uphill battle that we faced. I’m really proud to look back now and see how we basically ramped up all that relatively quickly. All the customer service and operational KPIs were at or often above the pre-COVID levels within a week or two. That was really impressive to see because it was A, a testament to the fact that we managed to get the infrastructure going and that you don’t necessarily need to be physically in the office anymore, but it’s even more a testament to all the great work and dedication that our colleagues have done in sub-optimal circumstances across the continent. That was great to see.
Andrew Zezas:
Well, there are a lot of heroes that are emerging through this crisis. Some of them we’ve talked about from a humanistic, from a personal perspective, first responders, doctors, nurses, the people who service the hospitals and clean them. Tremendous, tremendous efforts by all of them to save lives and make it easier on those whose lives they couldn’t say. I also believe that, in the business world, there are unsung heroes, as well, starting with the rank and file employees but going through, believe it or not, to the IT people because if it was not for IT, everything really would have come to a grinding halt. I do believe that IT executives are really the unsung heroes of business in this crisis.
Andreas Brauch:
Can I fully echo this? We had our team that was both here, in North America, working 24/7 for the first few weeks, but also the colleagues in Hamburg who had to battle the time difference on top of that They were really scrambling quite a lot. I have to say they have done an excellent job and fully support what you said.
Andrew Zezas:
How has Hapag-Lloyd’s business fared in the last five months, both on a North American and a global perspective?
Andreas Brauch:
I mean, it always depends on the expectations, right? I mean, compared to a lot of other businesses, again, we were lucky that we haven’t completely shut down. Obviously, it hasn’t turned out to be the year that we expected because what happened is that our transport volumes, the amount of goods that we transported, just decreased by, let’s say, 10, 15% compared to prior year just because in the first step, we had a production crisis in Asia because factories were shut down. Truckers were shut down in China and ports were not open so people in Europe and North America, they might have been still up for consumption, there was the demand there, but just the supply wasn’t there and therefore volumes dropped.
That, basically, was mitigated for a very short time when production ramped up but then shortly after that, the reality hit us quite hard here in North America and really in quite a lot of places around the world where entire countries went into lockdown. A lot of jobs were lost. Businesses had to close. And then, in a situation like this, obviously, the demand is decreased.
Normally, you’d have some commodities that still have a stable demand. All the foodstuffs, agriculture, tends to be quite stable as far as products. But a lot of the goods that we import from Asia to North America, all the electronics, TVs, and so on, obviously, there was a lot less demand because people, especially in a time of uncertainty, they really pull back from consumption, try to avoid discretionary spending, as much as possible and try to basically just brace for impact. If you have seen the macroeconomic stats, as well, for the first time in a long time, the savings percentages across the U.S. have gone up because people were afraid or they knew something bad was going to happen so they’d rather save the money and not spend it. Obviously, that’s something that a lot of our customers feel, especially in the retail sector, automotive sector. And then, derived from that, also we feel in the supply chain industry.
Andrew Zezas:
How has Hapag-Lloyd reacted? Did the company take any particular measures to protect its interest?
Andreas Brauch:
I mean, on a business side, and let me maybe start with that, we reacted very very quickly because it was clear that this would have a significant impact. In container shipping, the most crucial crucial factor that we have is basically the balance between supply and demand. So, the demand, again, is coming from all the customers trying to ship goods and the supply is the capacity that we provide with our vessels. From this, when this demand goes down, supply stays stable, prices go down. And then, there’s really a big big problem across the industry.
Now, for the first time in a lot of years, I think all market participants were quite disciplined in taking capacity out, and we had done that, as well, just to basically bring supply and demand, again, more or less in an equilibrium and to make sure we take costs out of our systems, as well. So, we blanked a lot of sailings, just skipped sailings, where there was not enough demand. A lot of our fleet is chartered vessels. We tried here and there to give back some chartered vessels that we didn’t have any use for. And we launched a Global Fulfillment Safeguarding Program, we called it, where basically over a few weeks we managed to set up a program with a savings in the mid-triple digit million area to really make sure that we are also braced for impact there and make sure that the company is in good shape.
The same goes, then, obviously, the engagement with our vendors, with our customers. We were quite strict on working capital management, making sure that we keep our receivables in check. Again, all done by people who were not sitting at their desk and fighting an uphill battle there but sitting at home and fighting the uphill battle from there. The same on the payable side, negotiating longer payment terms with vendors.
So, I think that, from a business side, we were quite successful doing that. Again, that was all mirrored by our quest to keep employees safe, to keep employees engaged and productive. I think that in concert worked really well, I have to say.
Andrew Zezas:
Andreas, were there any key factors that kept the business running?
Andreas Brauch:
Again, I think, overall, the big glue that kept things together was just the hard work and dedication of our employees because, again, you can’t stress it enough, and it’s not only here but it’s even moreso for all the doctors and first responders, this is not just a normal situation where you just work a bit harder. This is a situation where you have young families with everybody working, sitting at home, maybe sharing a desk at the same time their kids can’t go to school or childcare and still, they have the intrinsic interest to keep things running. I had the impression that people struggled to do it but then I got a lot of emails early in the morning or late at night of couples that sort of tried to share the burden on all sorts of fronts and keep things going. I think that was the main topic.
And then, obviously, as you mentioned the IT infrastructure helped a lot and the fact that we were able to communicate, even though it wasn’t person-to-person but virtually, that was good. In a lot of cases, I had the feeling that there was even more engagement than there was before because, obviously, it was a bit sort of this crisis mentality so everybody was circling the wagons. At the same time, especially those people who work in a different office, a different state, a different country, everybody moved together with us especially in moving quite a lot towards an MS Teams and videoconference solution that you just feel much closer together. I think that was really a big big factor, as well.
Andrew Zezas:
I can certainly believe that increased use of video and our constant visual connectivity may have been challenging for those of us who used to sit next to each other but I think it worked much more beneficially for colleagues who were located in different states, in different countries. I think it served to bring everybody closer, yeah.
Andreas Brauch:
I mean, just an example for this, we used to do regular town halls here in our headquarters. And then, when I traveled, the president traveled, we would do local things here and there, as well, but obviously, it was very much centered or gravitated towards the headquarters in New Jersey. And now, with MS Teams, we’re doing that just by default on a regional basis and we have all 1,200 people in the same session. [crosstalk 00:23:18] so that customers can still be served but everybody gets the same message and the same accolades. I think this is, especially for the colleagues who are a bit further removed, physically, from the headquarters, that’s actually beneficial.
Andrew Zezas:
I noticed that you’re speaking with us today from your office verus your living room. It must feel good to be able to finally get out of the apartment and spread your legs and drive someplace and actually go back to the office. As the company is transitioning employees back, is there a particular course of action that the company is taking in terms of how and how quickly it’ll transition its employees back to the office?
Andreas Brauch:
I mean, let me tell you, it’s really nice to be back in the office because it gives you just a feeling of slowly going back to normal. I mean, it is not back to normal because we have quite strict protocols, and rightfully so. Every time I get up, I have my mask here that we got for everybody. We have social distancing in place. We have quite strict cleaning protocols. And we made it quite clear that, in the first phase, we don’t want to have more than 20, 25% of staff back. That’s sort of the global rule. We also said that, certainly, we need to differentiate office by office because, obviously, there is a slight sigh of relief that we can breathe here in the Northeast, but we have big offices in Texas, I mentioned Georgia before, California, and that situation is just a bit different so we need to play it by ear and differentiate quite carefully there.
For the employees who have gotten back, we made, again, sure that they feel safe, that they are safe. Provided a little welcome back kit with a branded mask, face shields, hand sanitizers, and so on, so that they could make good use of that and make sure that everybody is safe because, I mean, we certainly don’t want to have any sort of local transmission in the office because that would be just catastrophic.
At the same time, what we now did, as well, is that we basically counterintuitively in that situation moved ahead and accelerated a couple of infrastructure projects that we had planned, mainly here in our headquarter where we have a big office space renovation/modernization planned that we pushed back initially in March when everybody was fearing that we would fall off a cliff or something. Now that we have seen that it’s tough but it’s not catastrophic, we actually decided to accelerate that and basically make sure that our office is fully done once we can actually bring people back at a larger scale because schools are open again. So basically, trying to avoid the disruption and accelerate the whole project.
Andrew Zezas:
I’m assuming that since you’re calling us from your office now, you’re not wearing shorts?
Andreas Brauch:
No, I’m back to pants now. Yeah, I think everybody tried to be rather disciplined in their daily routines. I just have to see, once I get off my office, it’s a building site now. Within a half a day, they turned an office into a construction site. And there, I’m not sure what the construction guys are [crosstalk 00:27:14] but it is good to be back in business more.
Andrew Zezas:
Well, glad to see you’re back in your office. Let’s talk about the container shipping industry a little bit. You shared with us Hapag-Lloyd’s reaction. How has the industry, overall, reacted to the crisis?
Andreas Brauch:
I think rather in concert. I think that was pretty good because everybody, all the major players, they saw the same challenges. Again, it all goes back to the balance between supply and demand. If the demand is just dropping because either factories are closed or the demand of the end consumers is dropping, it’s just imperative that also the capacities and therefore the supply gets adjusted. I think everybody moved in the same direction, which I think was great because it avoided some sort of price war.
We had a number of competitors who went to their local governments, asked for subsidies or help there, and they got that, as well, but we have been able to avoid that. That’s also a good sign.
Andrew Zezas:
What was the impact on the industry? Talk to us about the sequence of events.
Andreas Brauch:
I mean, it was a full-blown impact, as I said before, because just supply chains were shattered. If you think about it, looking backward, it’s quite interesting what happened because, and I touched upon it briefly before, we started with this production crisis. Everything shut down in China. Basically, we had vessels with 15, 18,000 TEUs, so standard containers that fit on there, and there were maybe a few hundred loaded just because nothing could get out of the ports or out of the-
Andrew Zezas:
Wow.
Andreas Brauch:
… factories.
Andrew Zezas:
Wow.
Andreas Brauch:
And you can imagine that that’s not the best way to utilize your asset. That, actually, rebounded relatively quickly once the situation in China got a lot better but then you really saw how the virus spread to other countries. Demand reduction in Europe, demand reduction in U.S., so there was just a lot less demand from customers. Now, we see it again in India where the situation is rather grim so exports from India are going down rapidly. And also Latin America, which for the first two or three months everybody was thinking that we dodged a bullet there, is now in full crisis mode and everybody’s in lockdown. So, also there, we have a significant impact.
So, basically, [inaudible 00:30:11] some sort of wave pattern that it goes around the globe. Currently, we are seeing the biggest impact, again, in India, in Latin America, and also, to be honest, still here in the U.S. where there’s still a lot of uncertainty. The numbers have gone up, as you know, significantly. So, I don’t think that this is over.
Andrew Zezas:
Yeah, I think you’re right about it not being over. So, what do you think the longterm implications are to, let’s not only talk about the shipping industry, but global trade, as a whole?
Andreas Brauch:
That’s going to be a crucial question because I think a lot of people realize that this mantra of offshoring everything at all costs, of total globalization, might not be the Holy Grail, after all. You have to know that, for many many years, the shipping industry, logistics industry, every year grew at a multiple of the global GDP because there was more and more offshored, it was more and more transported in containers rather than in bulk, and the global trade just kept growing.
I think, also, that we are in some sort of inflection point because I do believe that there will be some sort of trend towards regionalization, reshoring of certain items. Again, I don’t think people will walk away from this and say, “Okay, let’s just keep producing all of our antibiotics, all of our PPE, in India or in China,” but there will be, also, some strategic reasoning to reshore some of that.
I do believe that we still will have globalization, to a very large extent, because we will not go back to a situation where every country produces everything it needs, that there will be a lot of trade, but maybe it’s going to grow at a much smaller smaller pace. What you will also see, I think, is that there’s going to be a shift of focus, in terms of geographies, because for decades now Asia has always been the powerhouse. Obviously, with certain shifts within Asia, Japan, China, Indochina, that really produced a lot of the goods that we consumed or used around the world. I think this is still going to continue towards Africa, most likely. So, everybody needs to sort of be aware of that and also be cognizant to have the right response to that.
Andrew Zezas:
Well, do you remember the movie Back to the Future? I saw a joke on the internet recently where Michael J. Fox’s character looked at Doc, the old professor, and they were about to get into the time machine. Doc said, “Wait, Marty. Whatever you do, let’s not go back to 2020.” So-
Andreas Brauch:
I think everybody can agree to that.
Andrew Zezas:
My question to you is, given what we’ve been through and what we’re still dealing with, what do you see as the outlook for the shipping container industry for the rest of this year?
Andreas Brauch:
I think, again, it’s going to be very much driven by the macroeconomic development and the demand there. I mean, it’s anyone’s guess. It’s a big crystal ball, I guess, but in the end, we expect still demand to be depressed well below prior year. I think that’s going to continue now for the next couple of quarters. It was a lot of talk about having really a V-shaped recovery. Again, looking at some of the developments that I see here in the U.S., I doubt that the V will be really spiky and we see a very quick recovery. I think, as long as there is still this uncertainty, these economic difficulties that we see, it will also impact global trade and container shipping then, as well. I would expect that we’re well into 2021 before we really see a big uptick there. Again, it’s not a specific trade topic. It’s all related to the macroeconomic situation.
Andrew Zezas:
Do you see any particular drivers of global growth within 2020?
Andreas Brauch:
Within 2020, I think it’s mainly about the usual suspects coming back on, especially in the retail, especially in the automotive sector. I could imagine that there is some sort of bounce back once people get comfortable again risking to buy a car or buy a big TV.
Andrew Zezas:
Do you see any particular industries that’ll suffer more than others?
Andreas Brauch:
I mean, if you look and if I drive out here, I see all these big malls and the big retailers, the J. C. Pennys, the Macy’s, and so on. I think, for them, it’s particularly difficult because, I mean, a lot of their real estate has effectively been shut down. They did not have a very effective online presence. I think a lot of people have even more seen that it’s possible to get stuff on the internet, that you don’t necessarily need to go to a brick and mortar store. Which, in and of itself, is not a new development or new idea but I think this is something that really had an accelerating effect, for sure.
Andrew Zezas:
What other challenges do you see in your industry? Specifically in container shipping?
Andreas Brauch:
I mean, one thing is sort of, and that’s what it all boils down to, is the supply and demand balance. We have been quite bad, as an industry as a whole, to mange that because for many many years now, after the 2009 crisis, there has been a race for everybody to become bigger, have bigger vessels, because obviously, if you have a big vessel compared to having two small vessels, you get significant economies of scale. So, there has been this race to become bigger and bigger and therefore, there has been this constant oversupply in the industry leading to depressed prices and just basically a lot of carriers making big big losses.
We had a lot of consolidation as a result of that, but I think there we are also at an inflection point because I think that is now flattening out. I could still see that there is some imminent activities out there but it has definitely become a lot less because of the top 20 carriers that we still had four, five years ago, now we have maybe seven or eight carriers that really do have a global presence. So, it has consolidated quite a lot.
One of the key challenges that I do see is going to be the whole environmental regulation. It has been overshadowed now by COVID but it’s going to be certainly one of the big big themes going forward where we have expected that to be the big topic for 2020, going into 2020, because there was new regulations that we would need to burn cleaner low-sulfur fuels, which did increase our fuel cost significantly. I do believe that, going forward, this will also be a trend that will keep going. So, an increased focus on environmentally-friendly vessels, potentially also a move away from the traditional fuels that we currently have, and then potentially going more to an LNG-based solution or even more [inaudible 00:38:55].
So, that’s sort of from a traditional perspective. And then, I’m curious to see what’s going to happen with the reshoring/regionalization aspects that I see. There’s also quite a bit of talk about 3D printing becoming a danger to the industry. I think that we are still a bit away away for that to really become a threat but it’s also these kind of things that are maybe a bit less intuitive but that are then really a key factor.
Andrew Zezas:
So, the thought of instead of purchasing a product that’s made in another country and being shipped to me, I could print it in my office.
Andreas Brauch:
Exactly, or you have somebody onsite who prints it for you. Obviously, that’s not applicable for all products, but I could see a scenario where that is going to be more prevalent. You have to remember, though, that it only makes sense if there’s no labor involved because labor gets expensive here. And then, if you calculate the costs of shipping down to your plastic whatever, plastic toy, you talk about, I don’t know, 10, 15 cents or something. So, the shipping, itself, is not a big factor.
What I could see is that we move aways more from a supply chain process perspective, that we see that there is the potential for bigger disruptions supply chain and that we will have, from that risk mitigation perspective, more this trend towards regionalization, different production methods. Or, also, that we move away from this very strict just-in-time production and principle to a bit companies having larger inventories again just to be a bit more robust against these global supply chain disruptions.
Andrew Zezas:
Well, Andreas, I think we have time for just a couple more questions as we wind up our interview. I’m curious to hear your thoughts on, both from a societal perspective and a business perspective, what do you think we’re going to learn from all this?
Andreas Brauch:
It’s something that I’ve asked myself for a while. I think the big themes are that we can make much more use than we have done so far of the fact that we’re working remotely, that we’re using digital tools, that we don’t need to print out everything, but we can just also process documents digitally. That should give us quite a lot of flexibility in the way we work, the way we interact. I think, on the flip side, it also showed us, by just taking it away for a while, the value of interpersonal interaction.
Andrew Zezas:
[crosstalk 00:41:59].
Andreas Brauch:
I remember the first meetings I had with my peers here was really refreshing, very nice, too. Even though we’re socially distanced, wearing masks, and so on, but just to have this human presence in the room was really something great. I think we will relatively quickly figure out where it’s actually value adding to have an in-person meeting and really where, conceptually, have some discussion that might be a bit difficult to do over video conference, and where it’s just not that value adding and you can work at home or have video chats, and so on. I think that is something that will certainly have a big impact. The same on the IT side.
For me, what’s almost more important is that we see that even if we don’t have people physically in the building, it really paid off that we put quite a bit of trust in them just to get the job done even though they were working from their kitchen tables. We didn’t have daily interactions and they had to manage their family in the meantime. That’s really really something good because then, if you get to a point where everybody feels so dedicated and so fulfilled by their work that you don’t necessarily need to control them that much, I think that will lead to a big increase in the employees’ satisfaction and also efficiency, in the end.
Andrew Zezas:
Well, Andreas, I know we have some questions from the audience but I wanted to thank you for sharing your thoughts with us, first of all. This has been dynamite.
Andreas Brauch:
It’s been my pleasure.
Andrew Zezas:
Thank you very much. One of our first questions reads, “During one of the last economic downturns, the container shipping industry went into that downturn with a substantial overcapacity, which took a while for the industry to work out. How has the industry worked out that overcapacity and where does it stand today?”
Andreas Brauch:
Yeah, I think that’s exactly what happened. I think everybody realized that just economies of scale is not the right answer here. What happened in 2009, 2010, is that we had quite a steep decline, obviously, once the crisis hit. And then, once there were the first signs of recovery, everybody went all-in and ordered ships so that, at a certain moment, we had up until, like, 40, 50% of the current fleet we still had on top on the order book that was being produced in the shipyards in Asia. And now, we are seeing that leveled where it’s not 50% of the currently but it’s down to 10%. So, I think everybody realized that capacity management is really the big key and that just looking very isolated on your [inaudible 00:45:02] doesn’t really help. So, I’m pretty confident that we don’t see another 10 years of crisis ahead of us.
Andrew Zezas:
Thank you for that. One of our guests, George [Anan 00:45:14]… Hello, George. I’m glad you’re with us today. George is asking the following question. “Globalization has already changed due to the tariff wars. Do you foresee further decrease due to isolation strategies and lower worldwide demand?”
Andreas Brauch:
I mean, those are all like puzzle pieces that I can see. In the end, I don’t think we will go back to a scenario where the U.S. will be completely [inaudible 00:45:46] and produce everything, all T-shirts, all TVs, and so on here in the U.S. So, I don’t think that there is going to be a massive drop. But obviously, all these little puzzle pieces, the whole tariff story, the trend about regionalization that I see, and just a slight dip in demand will certainly drive trade down for the next month or year. And then, after that maybe it’s not going decline, it’s going to be growing again, but not at the same pace, potentially, due to this regionalization efforts.
Andrew Zezas:
Thank you for that. We have one more question from the audience. “In the middle of June, the Financial Times published a list of 100 industries that are benefiting from the current environment. Are there any particular industries that Hapag-Lloyd sees that are prospering, based upon the activity in their shipping?”
Andreas Brauch:
I mean, we see some industries that are definitely more resilient. Everything that’s really a necessity. Again, that brings us down to food. I heard there was quite a lot of high demand for toilet paper for a while. All these sort of essential items, they are very resilient. The companies or the industries that I really see benefiting are not necessarily the ones, I think, that are shipping goods. It’s the ones that really are on the forefront of digitalization, the ones that showed that we can get a lot more done, also, from our living rooms if we want. I think those industries just made a big quantum step. Again, not something that I think was unexpected or is completely new, but it just accelerated that development tremendously.
Andrew Zezas:
Andreas, thank you very much for being with us today. You’ve been very kind, you’ve been very gracious, and very thoughtful in your answers. I know your time is incredibly busy given your responsibilities, so the fact that you chose to join us is very meaningful to us. I hope you will accept my gratitude and my thanks.
Andreas Brauch:
No, it’s been fun, Andy. I really appreciate the invitation.
Andrew Zezas:
Well, thank you very much. We enjoyed your being here. And to our guests, I’d like to thank you very much for joining us. To those of you who posted questions, thank you so much. If you’d like to communicate directly with Andreas, reach out to me and I’ll be happy to make a connection. Beyond that, I hope you’ll join us again. Please visit us at cfostudio.com and reserve your seat for the upcoming CFO StudioLIVE interviews and our other interviews that are happening over the next couple of months.
Enjoy the summer. I hope you actually do get to commute from someplace other than your kitchen and your living room. If you do, please be safe. Come see us again, come see us often, and God bless.