A Critical Comparison of General Maritime Corporation and Maersk Line - Case Study Example

A Critical Comparison of General Maritime Corporation and Maersk Line Table of Content 1.0 Introduction 2 2. 0 Overview of General Maritime Corporation 3 2.1 Organisation structure and management 3 2.2 Marketing Strategies 5 2.4 Porters Five Force Analysis 8 3.1 Organisational structure and management 11 3.2 Marketing Strategies 12 3.3 PEST Analysis 13 3.4 Porters Five Force Analysis 14 5.0 Conclusion 17 References 18 Executive Summary This paper seeks to critically compare the internal and external forces shaping the competitive environment of the shipping markets that the General Maritime Corporation and the Maersk Line operate in. In order to establish this, it discusses the organisational structure and management of these two companies. Subsequently, this paper uses Michael Porter’s five forces and the PEST analysis model to depict the external forces shaping the competitive environment of the shipping markets that the General Maritime Corporation and the Maersk Line operate in. This paper establishes that there are many similarities as well as differences between these two shipping companies. Some of the similarities identified revolve around the organisational structures of these two companies and the market structure that they operate in. Conversely, the differences established revolve around the structures of the operations that these two companies employ and the nature of the markets and competition in the markets that they operate in. 1.0 Introduction The shipping industry provides an essential link for international trade and the overall global economy. Shipping is the most effective means of transporting large volume of cargo over very long distances. Overall, this industry is complex and notoriously susceptible due to its dependence on trade flows (Kumar 2009). Basically, the shipping industry can be categorised into; general cargo shipping, tankers, bulk carriers, passenger ships, containerships and fishing vessels. Although these categories of shipping operate in the overall shipping industry, the specific industry niche and shipping companies operating within the specific niches in this industry have distinct characteristics (IMO 2012). This paper seeks to critically compare two shipping companies from the bulk shipping market and containership market. In this case, the companies that will be compared include; General Maritime Corporation which operates in the bulk industry and Maersk Line which operates in the containership industry. This paper will compare the organisational and management structure of these companies. Furthermore, it will critically evaluate the internal and external forces that shape the competitive environment that General Maritime Corporation and Maersk Line operate in. 2. 0 Overview of General Maritime Corporation 2.1 Organisation structure and management General Maritime Corporation (GMC) is a pubic shipping company operating in the wet bulk shipping industry. Basically, this shipping company specialises in shipping oil tankers in the North, Mediterranean, Black and Caribbean seas. This company was founded in 1997 by Peter Georgiopoulos and has since grown to become a leading service provider in the global seaborne oil transportation. It is also a big operator of small and large crude product tankers. The company has over 37 fleets of ships which transport millions of oil barrels and petroleum products worldwide. Generally, GMC operates a fleet of 12 Suezmax, 7 VLCC and 6 Aframax vessels. The company’s core fleets are supplemented by 2 MR2 and 2 LR1 product tankers. In 2008, the company finalized its merger with Arlington Tankers Ltd and as a result acquiring 8 fleets of double hulled vessels. The company aims at incorporating modern vessels that meet the strict operational standards and requirements set out in the industry (GMC 2012). GMC’s major clients include major international oil companies like Chevron Corporation, Hess Corporation, Sun International Ltd, Lukoil Oil Company and CITGO (Plunkett 2009). When it comes to management, the company’s key focus is often geared towards safety and environmental management and providing customer-oriented services. Given that it is a public company, the company also endeavors to create long-term shareholder value. In order to realise success in these areas, the company always endeavors to hire and retain professional and experienced staff (GMC 2008). GMC has a de-centralized management and organisational structure. As a Corporation, GMC has technical and commercial management subsidiaries namely; General Maritime Management (Portugal) LLC and General Maritime Management LLC. General Maritime Management LLC is based in New York and its main function entail business management. On the other hand, General Maritime Management (Portugal) LLC is based in Lisbon Portugal. This is the technical subsidiary of GMC and its main functions entail performing technical operations for the Corporation. The company has a decentralized organisational and management structure so as to enhance its efficiency in service delivery.GMC also has operation bases in New York, London, Greece, Lisbon, Bermuda and Greece so as to enhance its penetration in the market (GMC 2012c; GMC 2012d). GMC’s management comprises four key leaders, Peter Georgiopoulos is the founder of GMC and currently acts as the Chairman of the Corporation. John Tavlarios is the acting president and CEO of the company. Other key leaders include; Jeffrey D. Pribor, the managing director and chief financial officer and Leonidas J. Vrondissis, the Executive Vice President, Treasurer and Secretary (GMC 2012b). The company also has a board of director comprising of five permanent members. The key role of the board is to oversee the overall operations of the company and make key decisions (GMC 2008; GMC 2012b). 2.2 Marketing Strategies Generally, GMC’s ships are principally operated in what is referred to as the spot market. This implies that rather than holding long-term contracts to ship oil for particular customers, the company usually contracts for specific shipping trips often on short notice for varying rates. The use of this market approach has over the years enabled the company to capitalise and enhance its profitability. Although the spot market was extremely volatile, it was more lucrative than long-term shipping contracts. However, with time the spot market fluctuated thus forcing GMC to also consider long-term shipping contracts (Funding Universe 2012). GMC positions itself in the market as an outstanding service provider that enforces rigorous standards of operation and has a steadfast commitment towards safety and environmental protection (GMC 2008). One of the key marketing strategies that GMC uses in order to stay ahead of other competitors in the market is continuously upholding and communicating its steadfast commitment towards safety and environmental protection. The company aims at preserving the highest standards of safety and quality by regularly inspecting its ships and retaining highly trained and experienced professional (GMC 2012e). Moreover, in order to enhance its presence and competitive edge in the market, GMC focuses on expansion through acquisition. The company focuses on Aframax, Suezmax and VLCC market thus asserting itself as a consolidator in the general crude tanker industry. Through this market strategy GMC has over time managed to develop substantial core competencies and a strong leverage in the midsize-large tanker segments (GMC 2012e). In addition to this, GMC capitalises on customer relationship management in order to develop its brand equity and enhance its competitive edge in the market. The company strives towards building its reputation as a high quality and dependable service provider. As a result of the company’s focus on effectively managing its customer relationships, the company has over time managed to develop a diverse and lasting client base (GMC 2012e). 2.3 PEST Analysis As a company operating within the wet bulk shipping industry, GMC is exposed to political, economic, social and technological variables that characterise the wet bulk shipping industry. This section of the paper will focus on analysing the political, economic and technological variables that characterise the market that GMC operates in. From a political view point some of legal regulations are among the key factors that affect GMC’s operations. Generally, the wet bulk shipping industry is highly regulated due to its international nature and the potential risks of transporting crude oil and petroleum products across different world‘s ocean. The International Maritime Organization (IMO), one of the specialised agencies of the United Nations is the key regulatory body charged with the mandate of enforcing a regulatory shipping framework for safety maritime security, efficiency of shipping, environmental concerns and legal matters. Recently, the safety and quality standards have been substantially raised especially for wet bulk companies that transport crude oil and petroleum products. Stricter international regulations have imposed to companies operating in this industry. Consequently, most companies have had to raise their safety standards, professionalism and environmental responsibility. Moreover, there has been increasing consolidation by large public shipping companies. The 2010 International Maritime Organization’s ban on single hulled tankers provides a good example of how strict regulations affect companies that operate in this industry such as GMC. Although this ban would fully come into effect in 2015, some nations such as Australia, the European Union, Philippines and Korea already deny single hull tankers access to their ports (GMC 2012f). The performances of companies like GMC which operate in the wet bulk industry are very vulnerable to trade flows especially in relation to prices of crude oil and petroleum products. The ever fluctuating prices crude oil and petroleum products significantly affect the performance of companies operating in this industry. Increase in the global prices often reduce the movement of crude oil and petroleum products whereas decrease in prices increase movement. Moreover, the performance of the global economy has a direct impact on this industry (Lorange 2005). Technology is also a key factor that affects the competitive environment that GMC operates in. Key players in this industry continuously seek to gain competitive advantage by improving their efficiency and performance through technological advancements. Advancements in shipping technology have significantly helped key market players such as GMC to improve their technical operations, communication, enhance their energy efficiencies and effectively monitor their systems in real time. Nevertheless, in as much technology has been beneficial in this market, it has result to increased spending and intensified competitiveness. The continuous technological advancements that take place in this industry have caused key players in this market to be at loggerheads with each other as each player strives to gain competitive advantage by incorporating the latest technology in their operations (Stopford 2002; IMO 2012; Blanpain, 2010). 2.4 Porters Five Force Analysis Michael Porter’s five force analysis provides a suitable framework for critically analysing the external forces shaping the competitive environment of the shipping market that GMC operates in. This section will focus on two key forces that affect this industry namely; bargaining powers of customers and intensity of competitive rivalry. In relations to Porter’s model, the bargaining power of the buyer refers to the impact that customers have on the market. Basically, the bargaining power of customers is strong when there are many service providers than the customers and vice versa (Hill & Jones 2007). Under this type of market conditions, the customers are likely to determine the price and other terms of service. With regards to the bargaining powers of customers in the wet bulk market, the interaction between the demand for and supply of shipping is what determines the freight rates. As a result of the nature of derived demand, the demand for shipping services in this market is highly dependent on seaborne trade volume of crude oil and petroleum products. Nevertheless, in the short-run, the supply of shipping services is inelastic. Excessive supply of shipping results to extra operational costs and reduction in freight rates. On the other hand, shortage in ship supply leads to an increase in freight rates thus motivating service providers to increase their shipping capacity (Lun & Quaddus 2009). Based on Porter’s five force analysis model intensity of competition refers to the state of competition between players in a particular market. It also touches on the number of players in particular market and the type of competitive strategies that the players in the alleged market employ in order to gain competitive advantage over other players in the same market. In this case, the more the number of players in a particular market, the higher the intensity of competition (Hill & Jones 2007). In the market that GMC operates, that is, the wet bulk shipping market, there are a considerable number of players. A number of maritime economists believe that the wet bulk shipping companies operate under a perfect competition market structure where there are many players thus no company has monopoly. Moreover, companies operating in this market gain competitive advantage by increasing their freight numbers and the volume or capacity of their ship. Thus a company which has more freight ships with large capacity has a competitive advantage over other companies operating in that market (Adland, Jia & Strandenes 2006; Lun & Quaddus 2009). 3.0 Overview of Maersk Line Maersk line is a container shipping company and one of the business units of the larger Maersk group founded in 1948 in Denmark. At the time the group had only one freight however, the firm has grown over the years to become one of the world leaders with destinations all over the world. Furthermore, the Maersk group projections towards the future are such that all its investments are focused on Maersk Line, Maersk Oil, APM Terminals and Maersk Drilling, each of which is to generate at least USD 1 billion in revenues in the medium term. Today Maersk Line is the world’s largest container shipping company and a customer-focused leader in reliable and eco-efficient transport. According to Reinhardt, Casadesus-Marsanell&Nellemann (2012) in 2012 Maersk Line was the world’s biggest container shipping company with over 17% of the world’s operating fleet (Casadesus-Marsanell&Nellemann 2012; Maersk Line 2012; Fremont 2007). 3.1 Organisational structure and management Sitting at the helm of management is Soren Skou the CEO of Maersk Line having been appointed to the position in January, 2012. Maersk Line’s mission statement is ‘to provide opportunities in global commerce’. The firm prides itself in the fact that the main differential that sets it apart from competitors is that ‘It eases business to be customer’s first choice, notwithstanding its unmatched reliability and best environmental performance. Over the years since inception Maersk Line has seen several milestones from expanding its market coverage worldwide working in conjunction with Sea-Land shipping company to the introduction of the Triple-E (Economy scale, Efficiency, Environment) vessels - a first in the world market that would usher in an era for size, fuel and cost efficiency as well as reduction of CO2 emissions. The company has been feted with various awards and continues to be a pace setter in the shipping industry (Maersk Line 2012; Reinhardt, Casadesus-Marsanell & Nellemann 2012). The effectiveness of an organisational structure is a function of “fit,” or how consistent or congruent all of the organization dimensions are with the strategy (Brooks 2000). As mentioned in the overview above Maersk Line is headed by a chief executive who oversees the functioning and the running of the organization, however the functions of management of the organization is structured such that it is decentralized, therefore various departments are delegated responsibilities in carrying out specific functions. Mearsk Line operates within a fixed schedule and has a fixed port rotation. Li & Lehmann (2012) acknowledge the fact that the greatest driver for the successes of Maersk Line is the consistent search for knowledge from within and without the organization. As a result, this ultimately gives the firm an edge in the way it carries out business around the world. Moreover, Maersk Line has explored mergers in the industry that has juxtaposed it favorably among competitors. Notably is the merger between Maersk Line and Sea-Land that enabled the firm stretch its reach to numerous locations around the world. Sys (2012) suggests that the merger of firms in the liner shipping industry surmounts to what he calls consolidation of the shipping industry. Nonetheless, Sys (2012) continues to divulge that the mergers and acquisitions in the liner shipping industry as characteristic of that between Maersk Line and Sea-Land are such that they define the kind of market structure as an oligopoly. Further, the intentional creation of the oligopolistic market conditions is backed by the fact that the liner shipping industry is fragmented and therefore similar mergers would be realized in the future. 3.2 Marketing Strategies Maersk Line has positioned itself as a world leader in the container shipping industry with a mission ‘to provide opportunities in global commerce’ the company has spread its reach all over the world. Most notable however is the firm’s efforts in environmental social responsibility. In its ambitions to become a sustainability leader in an industry that is often criticized for environmental impact through greenhouse gasses emissions, the company has embarked on ambitious plans that would see its carbon dioxide emissions reduced by 25% for every container vessel by the year 2020 ( Reinhardt, Casadesus-Marsanell&Nellemann 2012). Other than social responsibility, the management of Maersk line has as well engaged in several marketing strategies to position the firm ahead in the market the most notable being the consolidation of supply such that by merging with other companies such as Sea-Land, the firm would better serve the clientele. Li & Lehmann (2012) describe this consolidation as sustainable supply chain management (SSCM) where the aim of SSCM is to create more coordination between the stakeholders in the industry to ensure not only a profitable venture for the suppliers and good prices for buyers but also ensure environmental concerns are addressed. At the point of merger between Maersk Line and Sea-Land, the two companies had substantial assets, a global perspective, managerial talent, commitment to quality and a high level of customer service. Consequently, the firm grew to acquire other firms such as Safmarine Container Lines to become the biggest shipping company the world over (Brooks 2000). 3.3 PEST Analysis This section will examine political, economical and technological aspects that affect the containership market that Maersk Line operates in. Politically, international laws and regulations significantly affect the operations of companies that operate in the containership market. These laws and regulations are mainly centered on measures that mitigate pollution and promote vessel and fuel efficiency. Other regulations brought to the fore by the IMO include a tax levied on fuel. As a result the companies operating in this market, have been forced to look into investments in vessels that are fuel efficient in order to save money on taxes levied on Green House Gas emissions. For instance Maersk Line’s introduction of the Triple-E vessels seems to serve the purpose of complying with the IMO regulations (Reinhardt, Casadesus-Marsanell & Nellemann 2012). The containership industry is also significantly affected by the trade flows in the global economy. The demand for containership transport services is dependent on economic activities or trade. Changes or trends in the global, national or regional economy impact on the manufacturing and distribution of goods this in turn affects the demand for containership transport services. Economic regulation and deregulation also affects this market. Deregulation in this market is driven by the desire to promote greater service and price competition. Regulation negatively affects the demand for containership transport services whereas deregulation increases demand (NCHRP 1997). In addition to this, technological advances in information systems and equipments have profound impact on the containership market. Many of these technologies have helped to enhance efficiencies and productivity however, they require a substantial amount of financial resources to procure. Hence, companies that are able to procure the latest technologies have a competitive advantage over those that do not have such technologies (NCHRP 1997). 3.4 Porters Five Force Analysis The threat of substitution is one of the key forces that significantly affect the market that Maersk Line operates in, given the existence of other alternatives to shipping such as flying, road transport and rail. Nonetheless, the shipping industry in general continues to dominate the transportation industry and in most circumstances land and air transport serve as complementary means of transport to sea transport. Moreover, the second force that affects this market is the threat of new entry into the liner shipping industry. Due to the fact that the market is such that many players can easily enter the market then the firm stands to face stiff competition. Maersk Line recognizes that to survive in this industry, acquisitions and mergers are both necessary and inevitable. The other three forces of the porter’s five namely; supplier and buyer power and competitive rivalry can all be summed up in the fact that Maersk Line being and industry pace setter enjoys favorable competitive advantage over its rivals. Moreover, having based its services along the lines of Liner services it has secured contracts with suppliers and buyers and thus enjoys some form of control and power over both suppliers and buyers as regards to shipments (Reinhardt, Casadesus-Marsanell&Nellemann 2012; Fremont 2007). 4.1 A critical comparison Based on the information provided in the above section, with regards to the internal and external forces shaping the competitive environment of the shipping markets that the General Maritime Corporation and the Maersk Line operates in, it is evident that, there are many similarities as well as differences between the internal and external forces shaping the competitive environments of this two companies. Foremost, some of the similarities evident in organisational structure of these two companies is that, both these companies have decentralized organisation structure. The functions of management in these companies are decentralized therefore there are various operation bases and departments delegated with the responsibility of carrying out specific functions. Other similarities between these two companies are evident in the market that they operate in. For instance both GMC and Mearsk Line operate in a perfect competition market structure where there are many player thus no company has a monopoly over the market. Furthermore, the markets that these two companies operate in are affected by international laws and regulations as well as technological advancements that take place within the shipping industry. On the other hand, there are major differences between the internal and external forces that shape the competitive environments that GMC and Mearsk Line operate in. For example, one of the evident differences lies in the structure of the operations. For instance, GMC’s ships are principally operated in what is referred to as the spot market. This implies that rather than holding long-term contracts to ship oil for particular customers, the company usually contracts for specific shipping trips often on short notice for varying rates. However, Mearsk Line operates within a fixed schedule and has a fixed port rotation. Furthermore, in as much as the performance and demand of both GMC and Mearsk line are influenced by trade flows in the global economy, it is worth noting that the demand and performance of GMC shipping services is highly dependent on the prices of crude oil and petroleum products whereas that of Mearsk line is dependent on the production and consumption of general commodities such as grains, iron and coal among many other commodities. In addition to this, the nature of competition between these two markets significantly varies. For instance, GMC operates in a market where the intensity of competition is among the shipping companies within this market. Nevertheless, Mearsk operates in a market where the intensity of competition is not only among the shipping companies within the containership market but also amongst other means of transportation such as road, railway and air. Consequently, companies operating within this industry are faced with the threat of substitution. 5.0 Conclusion Basically, this paper has compared the internal and external forces shaping the competitive environment of the shipping markets that the General Maritime Corporation and the Maersk Line operates in. The findings of this paper depict that there are many similarities as well as differences between the markets that these two shipping companies operate in. Some of the similarities established include the fact that both companies have decentralized organisational structures. Both GMC and Mearsk Line operate in a perfect competition market structure. Furthermore, the markets that these two companies operate in are affected by international laws and regulations as well as technological advancements that take place within the shipping industry. Conversely, the structures of the operations that these two companies employ vary significantly. For instance, GMC’s ships are principally operated in what is referred to as the spot market whereby, rather than holding long-term contracts to ship oil for particular customers, the company usually contracts for specific shipping trips often on short notice for varying rates. However, Mearsk Line operates within a fixed schedule and has a fixed port rotation. Moreover, the demand and performance of GMC in the market is influence by the prices of crude oil and petroleum products whereas the demand and performance of Mearsk Line in the market is influenced by the production and supply of general commodities. References Adland R, Jia, H, Strandenes, S 2006, ‘Asset bubbles in shipping? 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