What Factors Affect the Attractiveness of the Container Shipping Industry?

What factors affect the attractiveness of the container shipping industry?

There are a number of factors that affect the container shipping industry. For example, political and economic forces can have an effect on fuel prices, which can lead to unpredictable profits. Additionally, operating and maintaining the latest technologically advanced ships requires huge capital costs. Finally, shipping companies have to be mindful of the ecological affects their ships have on ocean waters and need to be well-versed in the legal requirements of each country it does business with.

Using the structure-cost-performance model, the container shipping industry would most likely fall into the monopolistic competition structure. Although the case mentions that most carriers provide an undifferentiated service, Meli does offer some unique services giving them the ability to raise prices and retain its customers. This shows that while products among rivals are similar, they are not identical.

More specifically, we can look at Porter's Five Forces Mode to identify the factors that affect the attractiveness of the industry.

Threat of entry - Entry barriers are not particularly high. Although purchasing ships can be costly, a company does not necessarily have to own them. A company could lease ships with less up-front capital if they want to get into the container shipping business.

Power of buyers - Buyers can put significant downward pressure on the margins of the shippers. This is especially true of the Asia to North America trade routes, where large retailers account for 60% of the volume.

Power of suppliers - Exporters have a lot of "flexibility in choosing among container carriers, most of whom offer an undifferentiated service." This is further compounded by the possibility of excess capacity either from economic downturns or too many ships being built.

Threat of substitutes - Customers can choose air-freight but that tends to be much more expensive and does not offer the capacity to move large quantities of goods. However, it does offer the benefit of speed. In order to move a lot of product across oceans, sea-freight is the most efficient and economical way to go.

Rivalry among existing competitors - Rivalry is intense as competitors jockey for market share to spread their costs over a greater number of units. Also, industry cooperation had diminished in the 1990s putting downward pressure on prices.

How does Meli Marine compete relative to key competitors such as Evergreen Marine, Wan Hai Lines and Yang Ming Marine? Compare and discuss their relative performance.

Using a SWOT analysis, we can determine how Meli competes relative to its competitors.

Strengths: With the arrival of Tian, Meli now has a strong, focused management team. Also, unlike its competitors, Meli has focused on a narrow set of customers and commodities. This focus has allowed Meli to become the leading intra-Asia shipper in the perishable goods and chemicals markets segments. Additionally, through this focused differentiation strategy, Meli has been able to increase its perceived value through superior service that customers appreciate and are willing to pay a premium for. A further strength is that Meli has been able to integrate the value chain, offering door-to-door service.

Weaknesses: Smallest player among the four, not just in terms of numbers of ships but also size of ships. These smaller vessels don't allow Meli to achieve economies of scale that its larger competitors enjoy. Furthermore, they only have a presence in the intra-Asia market. This means that they don't have the relationships outside of Asia to be able to easily penetrate those markets. While they may have customers willing to use them on the outbound route, they would have a tough time filling their capacity on the return leg. This lack of diversification leaves it more vulnerable to economic downturns.

Opportunities: There are a number of opportunities that Meli can pursue. First, there are the rapidly growing shipping lanes of Asia-North America, which has seen 43% growth since 2007. Further, the Asia-Europe route has seen even greater growth at 53%. Additionally, there is plenty of growth at home, with the intra-Asia market seeing 47% growth. Also, if Meli doesn't want to go against the bigger carriers in the major sea lanes, there is 32% growth in the other Intercontinental shipping lanes. Other than this, the company also has the opportunity to significantly increase the average-size of its fleet by purchasing the Tee Sah ships.

Threats: There are a number of external