Consulting Proposal for Mel Marine - Liner Shipping Market

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CONSULTING
PROPOSAL
MELI MARITIME

1.
What are the most significant structural
factors affecting attractiveness of the
container shipping industry?

DIVERSIFY
Availability of many segments in
the value chain of the container
shipping market where the
suppliers can integrate and
diversify their business to
mitigate the risk.
MARKET
90% of the non-bulk cargo
worldwide is transported by
container shipping
BARRIERS
for new entry
1) Existing brand loyalty by the
customers (shippers) to major
lines 2) Major Shipping line
offering lower prices for
shippers due to the economies
of scale, 3) high fixed costs.
SUPPLIERS
Bargaining power of shipping
line due to the existing suppliers
or the shipping lines hold
substantial power over the
market. E.g. Maersk, MSC etc..
SUPPLIERS
Bargaining power of shipping
line due to the existing suppliers
or the shipping lines hold
substantial power over the
market. E.g. Maersk, MSC etc..
MARKET
GROWTH
SUBSTITUTES
1. Cargo Airlines
2. Cargo Raiwlay
E.g. Yiwu-London railway
line
CONSUMERS
customer has a large volume,
he can impact the behavior of
the shipping line since he has
more bargaining power. E.g.
Walmart

2.
What Strategy does Mel Marine have for
competing in this industry?
i. What market should be served?
ii. What type of product should be served?
iii. How can these services delivered most profitably?

PAST
STRATEGIES
SO FAR
1. Re-Structured its cost
structure. Sold old vessels,
added fuel efficient vessels
to the fleet. Spot Chartering
for lower operating cost of
the vessels.
2. Diversified its business from
feeder services to other
activities in value chain such
as Freight Forwarding.
3. Customized Shipping with
high focus on customer
satisfaction and relationship.
WHAT MARKETS
SHOULD BE
SERVED?
There’s an existing customer
base who are willing to ship
their goods through Asia-North
America route through Mel
Marine Container shipping due
to the quality of the service they
offer.
Mel Marine also has the
strategic vision to move in to the
liner market in North American-
Asia route in order to expand its
business.
PRODUCT TYPES
SHOULD BE
SERVED?
Adding up to its current product
portfolio, Mel Marine can serve
Liner Shipping through Asia-
North America Route.
Mel Marine can consolidate 3
products in to 1 (Liner + Feeder
+ Freight Forwarding)

HOW CAN THESE SERVICES DELIVERED MOST PROFITABLY?
According to the report, combining all 3 products in to 1, will earn Mel Marine a better profit Margin
If Mel Marine, wants to make a profit, the best way is not to acquire / buy new ships at the beginning
of the operations. If the business fails due to the volatile environmental factors and market competition, it will be a huge
hit on the profit and Loss account of the Mel Marine.
Rather spot chartering ships, like in the current business model can be implemented as the 1st phase.
Although Meli Marine has cargo to be shipped from Asia – North America, the back haul is almost empty. Meli
Marine has to adjust its prices accordingly to cover these losses it makes through the return journey
Segment data Liner Only Feeder Only Both Services
% of customer base 72% 12% 16%
Annual contribution margin per customer - 2007 average (USD, 000) 506 689 1,009
Churn rate - average 2004-2007 (%) 14% 29% 11%
Acquisition cost per customer (USD, 000) 415 539 802

3.
Competitor Analysis

MEL
MARINE
1. Operating 178 container vessels. (Total Capacity 620,000 TEUs), presence in all major shipping
lines. Major Player in trans-Pacific, intra-Asia Market (No 1 and Best Operator)
2. Diversified Business segments (Container Manufacturing, Vessel Leasing, Container Terminal)
1. Operates in Intra-Asia, Asia-Europe, Asia-North America markets. Biggest Revenue from Intra
Asia Market..
2. Diversified Business segments (Logistics Unit, Vessel Operations, Container Terminal, Vessel
Leasing)
1. Logistics Unit, Vessel Operations, Container Terminal, Vessel Leasing
2. Have Container Terminals in 4 countries.
Closet Competitor for
Mel Marine

Competitor Analysis
Portfolio Analysis by Boston Consulting Group
4) Dog
(Low market
share, low growth)
3) Cash Cow
(High market
share, low growth)
1) Problem
Child
(Low market
share, high
growth)
2) Star
(High market
share, high
growth)
LowHigh
Low High
Relative market Share
Market/IndustryGrowth
Mel marine’s Feeder
line is a Cash Cow.
Mel marines’ Intra-
Asia liner market is in
a Star.
Mel Marine’s
Expansion in to liner
business in Asia-
North America is a
Dog.
If Mel Marine moves
in to the Asia –NA
liner market, they
have to incur a cash
negative transition
due to the price
undercutting through
economics of Scale
and various other
price competitive
methods.

Operating Profit (Net Revenue) Analysis
(6,000)
(4,000)
(2,000)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2002 2003 2004 2005 2006 2007
Evergreen Marine Operating profit Wan Hai Lines Operating profit
Yang Ming Marine Operating profit Meli Financials Operating profit

Operating Profit Margin Analysis
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2002 2003 2004 2005 2006 2007
Evergreen Marine Operating margin Wan Hai Lines Operating margin
Yang Ming Marine Operating margin Meli Financials Operating margin

4. (i)
Recommendations to David Tian?

1. Don’t acquire Teeh-Sah Holdings are 4,500 TEUs ships.
smaller in size to gain the economies of scale like the other existing liners. unprofitable
to buy the vessels from Teeh-Sah for Asia-North American route.
2. If enters in to the Asia-NA route liner market, don’t compete on prices, yet keep
up the quality service.
There are existing customers who yearns for quality of service over small margins in cost.
3. If enters in to the Asia-NA route liner market, don’t compete on prices, yet keep
up the quality service.
There are existing customers who yearns for quality of service over small margins in cost.
Retain them at the start of the business.
4. Don’t enter the Asia-NA market with a large cash pool on hand.
At the beginning of the liner business in the new route, it expected to have a cash
negative scenario for a new entrant like Mel Marine.

Risk Associated
1. Hostile response from the MLOs / Competitors – Meli serves MLOs as a feeder
service, they will lose this market if Meli enters in to a price war with MLOs who serves
the same Asia- North America Route.
2. Inability to implement its successful Intra-Asia business strategy to the
Asia-North America route.
2. Due to the volatility of the prices and cargo volumes of the market, there a high
risk for Meli Marine to enter in to the liner market in the Asia – NA route.
4. Risk of a merger or acquisition. The small players are flushed out of the
market by undercutting of prices or being acquired by the Big shipping companies. Due to
the less impact and lower market share held by the Meli, they are exposed to a risk of
being either flushed out of the market (bankruptcy due to debts), or being merged /
acquired with a big player in the industry.

Advice
1. 3PL, Logistics, Freight Forwarding, Terminal Operations is still in growth stage.
In the Problem Child section in the Portfolio Analysis - BC. Since These operations are
earning higher ROCE rates than vessel operations, Mel Maritime shall 1st look in to the
more diversification and expansion of those business. Expansion of Mel Marine in to that
market will ensure the adequate cash pool to enter in to the liner shipping market.

4. (ii) How attractive is the market?

0
50
100
150
200
250
300
2002 2007 2012
Shipping Lane Volumes
Asia-North America Asia-Europe
Transatlantic Intra-Asia
Other Intercontinental
There’s a growth potential in the liner
market in Asia-North America route.
But the profit margins are highly
unpredictable due to the volatility in oil
prices and price wars with big players
who cater to the same market segment.
Product (service) Life Cycle
Source: BusinessSetFree.com
Liner market is in the Maturity Stage.
It’s a well saturated market, gradually
becoming an oligopoly. Liners are
consolidating with each other due to the
lesser profit margins and to gain
economies of scale.
LinerShippingmarket

5.
What are the key risks of diversification, are
there risks if Meli chose not diversify?

Risks of Diversification
1. High Volatility of Bunker
Fuel Prices and Cargo
volumes, makes it is hard to
break in to the market again
2. Hostile Response from
MLOs to whom Meli support
as a feeder service.
3. Risk of merger or acquisition
to keep afloat in the market.
Big companies may try to
flush Meli out of the market
by undercutting prizes.

Risks of Non-Diversification
1. Risk of concentration of risk
at one single place. If that
single place is has a
negative impact by an
event, then Meli’s risk
exposure is high.
2. If the Big Liners come to
Intra-Asia Market and
undercut the price, Mel
Marine will lose major
portion of their cash flow.
Thus, it is important, to
diversify its business due to
the threats from competitors.

141456X
RAHUBADDHA
141453K
KURUPPU-ARACHCHI
141409H
DANANJANA
131444B
PATHANJALI
Thank You

Consulting Proposal for Mel Marine - Liner Shipping Market

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