Executive Summary Without container shipping

Executive Summary
Without container shipping, global commerce would not be nearly as successful as it is today. In the middle phases of trans-oceanic shipping, between the 1990s and the early 2000s, 90% of general cargo was being delivered via cargo ships. The top fifteen companies of the industry were dominating 80% of the total volume. Meli Marine saw lots of opportunity to expand and began to wonder if acquisition would be a good move for them in order to expand into the Asian-North America oceans. The industry has trends that can help us see where the market is going and where it may or may not have potential. The costs would be a major factor to consider simply because so much of it is dependent upon the price of fuel. And nearly all the costs leftover are from fixed costs which doesn’t leave much room for negotiation. After analyzing Meli Marine, the current market, and its competitors, we believe expansion is not in the best interest of Meli Marine due to the mostly negative trends of the market.
Five Forces Model Analysis
Bargaining power of supplier. When it comes to leasing the available vessels, suppliers have lower power because that market is a lot larger. With that, there is also a lower return on capital employed, ROCE, for delivering containers. There is higher power given to the supplier when it comes to the terminal services. The price fluctuations of the fuel costs are a contributing factor.
Threat of substitutes. A competitor for oceanic cargo delivery would be air cargo. There would not be much of a threat for a few reasons. Due to the quicker method of delivering by plane, the cost is much greater so for companies to invest there would not be a wise choice. Air deliveries are also limited more with the size of packages. A lot of small packages can easily be put on a plane but the larger ones will require a different method of transportation.
Bargaining power of consumers. The businesses Meli Marine does business with, their customers, have a great amount of power in this category. They are able to negotiate prices. There is a large market for these companies because about 60% of the total volume being shipped is being sent for major retailers. Their bargaining is guaranteed to get them a lower price from one cargo carrier simply because most of the rates for these carriers are very similar.
Threat of new entrants. Meli Marine may see a high threat come from potential new entrants because it can be a high profit market if it is executed right. Increased number of entrants will decrease the income for Meli Marine so keeping out new entrants is crucial. The market requires a high level of capital to join and policies that must be followed.
Industry rivalry. The industry sees great rivalry from within. With so many companies in the market, there can become a point where they are over capacity. Price wars can also begin between different vessel carries due to the customers having high power with prices. Many new cargo carriers can lessen the company’s position in the eyes of the customer.
Global Factors
Political factors. With every election, there are different views on how trade should be done and what taxes should be applied. Each election has potential to drastically change the way Meli Marine operates and can make it a more or less costly matter.
Economical. Depending on how different economies are performing, exchange rates fluctuate often and that can affect the profit margins that Meli Marine can see. Employment rates of these Asian-North American areas is also a crucial factor because we will need workers to load and unload the containers that are continuously brought in.
Socio-cultural. The age group of employees being hired will matter because their attitudes will affect their work ethic which can reflect positively or poorly on Meli Marine. The social trends in the new territories will also need to be looked at because there are different norms, beliefs and thoughts on ethics everywhere you go.
Technological. New technology may be developed somewhere along the line that can make Meli Marine’s operations run smoother or faster. If the competitors are gaining access to newer technology first, that can be a negative impact if they gain competitive advantage.

Alternatives
Purchasing the vessels from Teeh-Sah. An acquisition is an alternative because Teeh-Sah is already established in the Asian-North American seas so Meli Marine will not struggle to establish routes. There is also a strong customer base that has already been established in Asia but it may not carry over to Meli Marine with the purchase. Meli The chart below shows that there is less demand for the North American market and that there will be a greater return in empty vessels.
Leasing vessels that can carry the proper capacity. Another approach would be for Meli Marine to leave ships that can carry the 10,000 TEUs and enter the North American market that way. This approach will allow for company growth but wouldn’t follow the company strategy and would be a more susceptible way for Meli Marine to see losses.
Expanding horizontally. This method would be more focused on entering the intra-Asian markets. With this we can still monitor the demand coming from North America into Asia in case there was an increase to capitalize on. A major advantage of this method would be a visible increase in ROA, as shown in chart below, and more control of the supply chain.
Recommendations
Acquiring Teeh-Sah would not be the best choice for Meli Marine but a horizontal expansion would be beneficial. The market in Asia has a big demand for the consumer goods that can be delivered. The returned trips to North America will not be bringing in as much money and will cost more than it makes. Expanding horizontally will allow Meli Marine to keep control of the supply chain, increase ROCE, and show more opportunity for the service differentiation