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Meli Marine Case Presentation - Team 7

This presentation is on the case analysis of 'Meli Marine'
by

Ravindran Damodaran

on 24 September 2013

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Transcript of Meli Marine Case Presentation - Team 7

Meli Marine's Acquisition Strategy
Dear MGMT 649 members,

Team 7 proudly presents the bloodline of 'Globalization'- The Shipping Industry

RAWL 2077
Rawl's Hall, Krannert School of Management
Purdue University
The Shipping Industry
Global trade relies primarily on trans-ocean shipping
Top 15 players account for 80% of world volume
Costs:
Variable Costs-20% to 40%:Influenced by fuel price
Fixed costs-very high around 50%
Trends in the Market:
Increase in Competition: Sluggish demand spurred price reductions and competition
Bigger Ships introduced for economies of scale
Threat of Overcapacity
Meli Marine:
Started business in feeder vessel service
Currently in Liner and Feeder services
Flexibility in cost structure
70% chartered and 30% owned
Owned specialized containers
Prioritization on narrow set of customers
Food stuff: Packaged and Halal food
Chemicals and Textiles
Localized Route Economies
Very Loyal customers
Concentrating on End to End supply services
Did you know why there are only 1 shipping companies in the Fortune 200 list ?
Did you know?
Mahender Raj Kalasikham
Ravindran Damodaran
Sai Gao
Strategists:
Profit is Sanity, Cash is Reality!
Recommendations
The Shipping Industry
Meli Marine: new kid in the block
Objective of the Analysis
Five Force Analysis
Competitor Analysis
Profit is Sanity, Cash is Reality
Expansion Options
Recommendations
Shipping goes Social
Agenda
Expansion Options
Social Media in Shipping
GLOBAL MEETS SOCIAL
Five Force Analysis
Rivalry within Industry
High Rivalry within the industry
Price war between vessel providers due to high customer power
Over capacity in the industry
Threat of Substitutes
Low Threat of Substitution: Air Cargo
Air transportation is quicker but costly
Air transportation good for small shipments
Threat of Entry
High Threat of New Entry
Asset-intensive: High Capital Investment required for new entrants
Need to establish a supply chain network
Acquire customers
Power of Customer
Customers have high negotiation power
60% of volumes by Freight forwarders and Major retailers
All container carriers provide similar cargo services
Power of Supplier
Leasing Vessels
Low power of supplier - Market for leased vessel is large
Low ROCE for container delivery
Terminal Services
High power of supplier
High Switching Costs for vessel operations
Increased fuel cost
Higher administrative costs
CUSTOMER CENTRIC ORGANIZATION
Competitor Analysis
Evergreen Marine
Fourth largest carrier in the world
Total capacity: 620000 TEUs
Diversified: Container Manufacturing, Vessel leasing, Container Terminals
Wan Hai Lines
80% of revenue from Intra-Asia services
Diversified: Vessel leasing, Container Terminals
Yang Ming Marine
Diversified: Logistics unit, Vessel leasing, Terminal operations
Is it the right move at this point of time?
Purchase capacity from TS Lines
Horizontal Expansion
Lease the required capacity
Acquisition - Fit Analysis
Localized Route Economy
Invest in specialized containers
Trans-pacific route is Consumer goods intensive. Is it Meli's expertise?
Average Vessel Capacity of 1200 TEUs
Does Meli has the strength and resource to manage 4500 TEUs?
Strong Customer base in Asia
Will it have same demand pattern in Trans-pacific route?
Will Meli have to fight price war?
Advantages & Disadvantages
Advantages
Diversification of Services
Attractive market opportunity
Pressurize Competitors
Objective
To determine if or not to pursue the acquisition of TS Lines Vessels
Meli Marine shouldn't acquire the vessels of TS Lines but instead concentrate on horizontal expansion of its supply chain because:

The Asia-Pacific line has major demand in Consumer Goods
Return trips not much demand: Competitive,price wars might lead to lower margins
No fit with the current organization strategy
Horizontal Expansion:
Increases the control of supply chain
Overall ROCE will increase
Opportunity for Service Differentiation
How does it affect business?
Gain Business: Connect to Freight forwarders
Brand Enhancement
Customer Feedback
Employee motivation
Meli Marine's margins and ROA higher than industry

Large Competitors: Huge overheads
Competitors have Asia-NA operations: Loss due to half empty returns
Financial Analysis: Meli vs. Industry
CLV value as services offered increase

Both services together give more customer value than individual services
Customer Lifetime Value Analysis
Disadvantages
Cascading Effect: Overcapacity
Divert for the company's strategy
Weak demand in NA Market: Half empty vessel returns
Lease vessels that can carry load up to 10,000 TEU
Enter the North American Market

Advantages
Company Growth
New customers
Disadvantages
Lose the strategy of the company
Susceptible to losses
Expand Horizontally across all verticals
Concentrate on Intra Asia Market
Build a brand value
Keep the eyes open for increase in demand from NA to Asia

Advantages: Become a leader in the present segment
Increased ROA and healthy financial
Better control over the supply chain
Scope of providing service differentiation
Questions ??
Full transcript