General Electric's (GE) Marine Solutions department recently signed a deal to provide electric systems to the world's largest container shipping business, Maersk Line.
The deal, announced Monday, is yet another sign that GE's CEO, Jeff Immelt, is pulling out all the stops to return GE to its more industrial roots as the company scraps the final remnants of GE Capital, leaving only a handful of financial operations integral in supporting GE's central businesses. (GE stock is an investment held in Jim Cramer's Action Alerts PLUS charitable trust.)
GE launched its plans to scrap its longtime lending arm, GE Capital, in April 2015, after the company had comparatively lagged behind peers such as United Technology (UTX) and Honeywell (HON) in recovering from the 2008 financial crisis, largely because of bad loans carried on GE Capital's books.
But Immelt's effort to unwind GE Capital, which included $157 billion in signed divestitures last year, has been counterbalanced by new megadeals, including its largest ever in the $10.3 billion acquisition of French turbine maker Alstom's (ALSMY) grid businesses last fall.
And the containerized shipping business, which Alix Partners views as a $173 billion global market by revenue, has recently been hammered amid cooling demand. Alix bases its market estimation on the trailing 12 months of total shipping freight sales as of a February industry report.
"The containerized-ocean-freight industry suffered in 2015," Alix Partners said in its report."Its continuing financial woes accelerated because nearly all key financial indicators declined from 2014. At the heart of the industry's problems, a persistent global supply-and-demand imbalance is to blame. All signs point to a continuation of that theme into 2016 and beyond."
But the industry is still building its fleet volumes, which could further open the door for electricity providers such as GE. Fleet volumes for containerized shippers is expected to grow by 4.6% in 2016 and 4.7% in 2017, according to the report.
GE's stake in the game will center on its "Power Take Off/Power Take In" technology, which GE refers to as PTO/PTI, that uses two induction motors that help reduce fuel consumption while providing vessels with abundant power sources. And the fledgling technology seems to appeal to the top players in the market, given the partnership with the industry's largest player by sales.
Tim Schweikert, GE's CEO of its Marine Solutions unit, says Maersk is an ideal partner to help GE break into the industry.
"Having Maersk as a partner, our entry into the container ship industry could not be more impactful," he said. "GE is continuously investing and developing solutions for the marine industry, and with our PTO/PTI technology, we are reinforcing our intention of driving the industry forward."
GE expects the containerized shipping industry to grow at a steady clip in coming years as 90% of the world's trade is made across the sea, according to its website.
Meanwhile, Maersk Line has shown signs of deteriorating sales, in line with the broader industry, booking sales of $5 billion in the first quarter, down 20% year over year, primarily due to a 26% decline in average freight rates, based on its May financial statements.