Shipping Strategy on Maersk

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Porter Five force Model
The shipping industry is nowadays a contestable business especially for the container business which occupies more than 80% of the international trade. Therefore, it is better to 1) examine the intensity of competition in the industry and hence 2) industry profitability since competition can drive down the rate of return, so it is easier to investigate the way to formulate thee competitive strategy in this industry. Therefore, the company can 3) identify the position in the industry whether to defend or attack in its favor. To understand such competition can help the company to consider and implement its strategies. Porter 5 Competitive Force Model points out that the competitive force from different sector.

Threat of Entry (-)
The newcomers in the industry bring new capacity and acquire a certain piece of market share, the rate of return in the industry, therefore, would increase and the competition would enhance. Since it is common for the newcomer to offer lower price services or products that may cause the existing firms lose market share and implement a relative strategy to lower its price and made a cut-throat competition. Eventually, the rate of return in the industry would decrease. However, to enter or to exit the industry is dependent on the barriers to entry or exit. The barrier to entry may be the capital requirement, switching cost, government policy, etc.

The Potential Entrants
In the shipping industry, the potential entrants to the container business can be identified by the alongside of the supply chain. Most of the firms in the supply chain may be implementthe upward integration or downward integration and they would become the competitors in the shipping industry. U

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For example, the retailers may implement upward integration to acquire the distribution functions to gain the competitive advantages in the retail industry and reduce the pressure from the supply chain alongside. Since the situation in shipping industry is that the supply of ships is greater than the demand, the freight rates were low in several years. It is no intention for the potential entrants to do vertical integration. And there is no trend to pose the vertical integration to secure the supply of container space.

Entry Barrier
There are some entry barriers to prevent the entry to the industry like Capital requirement, cost disadvantages independent of scale and government policy.

Capital Requirement
One of the barriers to entry in the shipping industry is the requirement to large capital investment, since the capital of shipping industry is mainly the property of the ship, for example, an 18,000 tones ship cost up to US$ 20 million. However, the fact is that “there is no fund raising market that exists at the moment, NO IPOs. NO bonds. And secondly, the banks tighten all the credit.”(Mr. Alan Ng, Partner, PricewaterhouseCoopers, RTHK: Hong Kong Shipping industry facing difficulties 2009-04-14 http://evideo.lib.hku.hk/play/4197255 ) Moreover, the banks delay to lend money for the shipping company to build ship that makes the (Mr. K. L. Tam, Managing director, Kingstar shipping). Therefore, a large investment is required to enter to the industry. Although ships can be purchased from the second hand market and rent in the tramp market, it is still hard for the new entrants to invest large amount of resources to negotiate in the market and the quality of ship is not guarantee, and the extra costs to invest in maintenance equipment are also another problem.

Cost Disadvantages Independent of Scale
The new entrant cannot gain the cost advantage. Moreover, the existing firms have already established their proprietary systems or technologies, developed in the favorable locations and utilized the past experience to optimize and smoothen the process. Therefore, it is hard for new entrants to gain a competitive...
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