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Meli Marine Case Study

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Ans 1) Factors for attractiveness of the shipping industry

- As global trade is always on a rise, and it is primarily dependent on trans-ocean shipping; thus there will always be a high need for the industry.
- Relatively easy to enter the industry; which is a threat to existing companies.
- Most companies offer similar services at competitive prices; therefore a client is at an advantage and can negotiate more suitable rates as he has many options to choose from.
- Rival companies fight for a greater market share and companies have started to resort to undercutting of prices, giving low prices and overall industry cooperation has reduced.
- Changing price of oil plays a huge impact as it constitutes a huge part of fixed costs.
- Buyers (eg- Walmart and Target) can dictate terms and prices as they constitute the bulk of trans ocean freight services. And companies, to avoid losing the business to rivals, negotiate the prices.
- Concentration of manufacturing in Asia means ships leave from Asia at full capacity, and charge high prices; on the other hand, they depart from USA/Europe half empty and charge a fraction of the cost.

Ans 2) How does Meli marine compete
-New CEO trimmed down size of its fleet, negotiated long term contracts with charters; sold old, inefficient ships. - Deal with a limited set of customers and focus on a limited good instead of shipping each and everything they can get their hands on.
- They diversified from being a spoke and feeder line to an intra-Asia line service and also started to provide their own door to door, freight forwarding service; this allowed them to take charge of logistics from the start to the end.
- Introduced specialized insulated and refrigerated containers for shipping of chemicals and perishable foods and soon became the market leader in this segment.
- Meli Marine focused on building a personal relationship with clients which created a pool of loyal customers.

Meli Marine’s Relative Performance
- Meli Marine is the smallest out of its competitors (Evergreen Marine, Wan Hai Lines, Yang Ming Marine) in terms of revenue, profit and capacity of shipments handled.
- All the competitors had large diversified businesses which includes

Ans 3) Recommendations to David Tian and Meli Marine
I feel that instead of acquiring Teeh-Sah’s vessel operations, Meli Marine should focus on establishing itself as an even more dominating player in the intra asian region. Reasons for this are:
- Even though the vessels from Asia depart at full capacity, vessels from America return half empty. Liners offer low rates to attract business. Also, the Teeh-Sah ships have a capacity of only 4,500 TEU whereas rival companies ships have a capacity of 10,000-15,000 on the Asia-North America sea lane. So even if Meli acquires the ships and they are running at full capacity (Asia to America); they will not be able to compete with prices of rivals.
- Amongst its rivals, Meli Marina has higher operating margins and return on investment; this advantage would be at risk. They would have to invest in the purchase of ships aswell and will be susceptible to losses in the new sea lane. Also, since the ships return to Asia half empty, there will be price wars to attract more business leading to lower profit margins.
Course of Action-
- Like their rivals, they should diversify into other businesses (eg. Container manufacturing) and concentrate on maintaining their brand loyalty.
-They can also look into horizontal expansion into the products they ship aswell as creating shipping specializations (eg. Insulated and refrigerated containers). With new products, they will have previously untapped Asian markets to serve.

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