Macro trends affecting attractiveness of shipping industry regards 1. Overcapacity. In the next few years freight rates and margins will be challenged due to overcapacity and required investment to operate with larger ships might not be repaid. 2. Oil prices fluctuations. Government politics can affect oil prices have major impact on cost structure. In the future latest vessel with low oil consumption technology might became industry standard and could require lot of capex leading to further competitor consolidation. 3. Increasing competitiveness. Cooperation (“conferences”) had diminished within competitor. Since shipping services are quite commoditized, Increased competition could damage industry margins Detailed analysis – Porter’s five forces
ENTRY BARRIERS – LOW
Capital requirements. Although leasing ships is possible, shipping industry is asset intensive and requires a significant amount of capital for shipping acquisition as well as maintenance and operations. Economies of scale. Per-container profit can be increased using bigger ship, assuming that the capacity is utilized entirely. This assumption is challenged by the cascade effect. Redeployment of excess tonnage by largest competitor challenge the smallest ones let them finding always more capacity in order to fulfill it and make it sustainable. Absolute cost advantages. Not relevant, related to economies of scale Product differentiation. Shipping service is pretty undifferentiated. Customers—particularly freight forwarders and major retailers—had flexibility in choosing among container carriers, most of whom offered undifferentiated cargo service. There is a minor grade of differentiation in providing cargo service with specialized containers, such as insulated containers for chemical shipments and refrigerated containers (known as “reefers”) for perishable foods. Access to channels of distribution. Not relevant
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Governmental and legal barriers. Regulatory scrutiny had lowered cooperation among player Retaliation (actual or threatened).
Threat of dumping in niche market by larger competitors
POWER OF BUYERS – HIGH
The importance of the product in the buyer’s cost structure. Not relevant Product differentiation. Not relevant
The level of competition among buyers. Not relevant
Size and concentration of buyers relative to suppliers. Freight forwarders and major retailers are very large customer with high level of bargaining power. In 2007 they accounted for 60% of total volume of Asia to North America trade routes. Switching cost. Very low
Buyers’ information. High, not relevant
Ability to integrate vertically (backward).
Very low
POWER OF SUPPLIERS – HIGH
Ships outsourcer – limited power since they provide undifferentiated service Ships provider – High
Oil supplier – High
THREAT OF SUBSTITUTES – LOW
Container shipping account about 90% of exported goods total volumes. Airplanes can be used but they have lower capacity and higher costs
COMPETITION – HIGH
Cooperation (“conferences”) had diminished putting downward pressure on prices Shipping service is undifferentiated. However Meli Marine seems to be able to offer some kind of unique customer relation service. This allows them to retain customer and prices Largest player are tempted to
2.What strategy does Meli Marine have for competing in this industry? Overview
Meli Marine is the smallest player in the market in terms of revenues and assets, mainly due to concentration on the intra-Asia shipping lanes (Geographical scope).
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Nonetheless, Meli marine seems to be able to offer premium services and this allows them to raise prices and thus operating margin, which is the highest among competitor – 9.2% avg compared to the competitor avg 5.2%. ROA is also the highest – 11,3% avg compared to competitor avg. 5,2% For this reasons we can define Meli Marine generic strategy as differentiated/focused.
COST LEADERSHIP
DIFFERENTIATION
FOCUS
Detailed analysis of Meli’s strategy
1. Increasing cost structure’s flexibility. Achieved reducing the total fleet owned selling older vessels shifting operation to charter 2. Shifting focus from feeder to liner services. This improved customer base and also led to operate vessel with more effective routes not only hub-to-spoke but also cover spoke-to-spoke lanes. 3. Managing product and customer mix. Focused effort in managing a good costumers and shipping products mix such as perishable and halal product. This increased capacity fulfill rate and to achieve more stable freight rates. 4. Developing sales force for freight forwarder service. Meli Marine developed also a sales function for its freight forwarder service, achieving end-to-end service and playing in different and more lucrative activities of the value chain. 5. All the previous strategy and the philosophy of the company enable them to offer premium services and this allows them to raise prices and thus operating margin, which is the highest among competitor. Definitely managing customer is both a “core competence” and a key success factor for Meli’s.