Abstract
This company deals with the provision of management, operation, and crewing services for a diversified marine fleet, which consists tanker, container and dry cargo vessels for approximately seventy ships with a capacity of close to 8.0 million deadweight tons (dwt). The company was formed in the year 2010 due to a merger between TST and SHL companies, with an aim of expanding services to third party and to continue technical management of existing TST managed fleet.
List of Abbreviations
CFS – Container Freight Station
EU – European Union
TST – Tsakos Shipping and Trading SA
SHL – Schoeller Holdings Ltd
ITM – Institute of Transport Management
/>
TEU – Twenty-foot Equipment Unit
EIA – Energy Information Administration
Introduction
Tsakos Columbia Shipmanagement (“TCM”) S.A. provides crewing and operating services for a diversified marine fleet consisting of container, tanker, and dry cargo vessels for about 70 ships with a capacity of approximately 8.0 million dead weight tons (TCM, 2013). The company was established in 2010 following joint venture agreement between TST and SHL. The purpose of the merger was to expand its services to third party and continue technical management of existing TST managed fleet.
Services offered by the company include conducting voyage results analysis, strategic voyage planning, communicating with charter vessels regarding charter requirements and voyage orders, contracting with global port agents, budgeting and cost accounting for vessels, and monitoring and implementing industry best practices.
The company has a pool of well-experienced staff of expert maritime operators and former seafarers with a global network of operation support to provide comprehensive marine operation services to its clients. The company meets the challenging expectations of its clients through a management style that emphasizes communication, quality, efficiency, and budget conscious. TCM has an information and communication system that enables it to share information seamlessly between vessels and ashore office and generate statistics and reports that ensures efficient and safe onboard management.
The company’s vision is “to be the Shipmanagement Company of choice for global sea transportation of goods and energy” (TCM, 2013). TCM achieves this hiring skilled and qualified staff with valuable management expertise and experience along with seafaring experience. TCM’s mission is "To set the standards for safe, environmentally secured, global sea transportation through the professional management of well-trained, qualified and motivated seaborne and shore personnel" (TCM, 2013).
Company Strategy
The company’s business strategy is to focus on safety, and centers on accomplishing the company’s strengths. These include provision of sea transportation through the professional management of a qualified, well-trained, and motivated shore and seaborne personnel. Through a team of an experienced staff of expert maritime operators and former seafarers with a network of operation support, TCM provides comprehensive marine operation services to its customers. In addition, the company has a leading information and communications systems that enables it to seamlessly coordinate its operation between ashore offices and vessels and generate statistics and reports essential for safe and efficient onboard management.
Analysis of Porter’s Five Forces for Greek Shipping Industry
Porter’s five forces is a framework used for analysis of an industry and subsequent development of a business strategy. In addition, it also determines the attractiveness and competitive intensity of a market. Attractiveness refers to the overall profitability of an industry while unattractiveness drives down profitability (Hax, A 2010). The implication of this model is that return or profitability should be constant across industries and firms. However, studies have confirmed that different industries can have different levels of profitability owing to their varied structure. This model can help organizations develop a competitive edge over rivals in the same industry. Typically, this tool helps to identify whether new services, products, or business have the potential to be profitable (Porter, 1998). Below, is a graphical presentation of Porter’s five forces framework that is discussed in relation to shipping industry, specifically the bulk carrier.
Porter’s five forces model that shape competition in an industry
Adapted from “The Five Competitive Forces that Shape Strategy” by Michael E. Porter. Harvard Business Review, January 2008
Attractiveness for shipping industry
(Analysis of container line business)
Interpretation
Here, favorable government policies and tax regimes are liberal toward licensing and development of shipping business. This increases the threat of new entrants, but due to the high profit margins, the attractiveness of the industry remains high. The industry is highly fragmented with many competitors available in the market providing perfect substitution in terms of services, rates, freights among others but the resources are easily available. The attractiveness is high because suppliers are few, but faced with high cost and limited availability of facilities makes suppliers weak and buyers stronger. As such, in terms of attractiveness, the industry attractiveness is low. There is perfect competition in the industry owing to many competitors (UNCTAD (2011). Buyers have high bargaining power, but the business potential is high because many buyers are in the industry. This will eventually increase industry attractiveness. Industry players are many, but constant technological advancements and enhanced services and facilities will increase the attractiveness.
Threat of new entrants
Even though many would love to invest in the shipping industry, especially bulk carrier segment owing to the large profits involved, this would however prove difficult due to large capital investment in the form of container and vessel procurement and risk of operating vessels. In addition, industry competitiveness suffers from rigidities in labor and product markets. The shipping markets are heavily regulated with high entry barriers. As such, majority of firms that operate in the industry are large firms, which have been in operation for the last 100 years. From the industry analysis, it is evident that the capital requirements are high, but the profit margin is high, so the attraction is high.
Supplier power
Suppliers have limited influence on companies operating in shipping line business, especially to leading players even though it may affect small payers struggling to establish within the industry to some extent. Majority of suppliers deal directly consumers but under the arrangement of bulk carriers like wooden pellets, fumigation, container repairs and truck transportation due to corporate link ups or contracts of companies with service providers. However, there are cases where some services are borne by shipping lines but the charges are included in freight charges, which would prove higher if management companies do not arrange for suppliers. TCM has a wide access to suppliers, which further reduces the power of suppliers.
Other suppliers such as movement of containers to CFS, stevedoring, loading/unloading of containers, and vessel towing, which are provided by authorized port suppliers and companies cannot arrange separately. Port authorities charge foxed charges for handling services from bulk carriers, who charge the same from customers for a profit margin.
Threat of substitutes
Substitution becomes a threat especially when an organization is on a crisis and competitors are waiting to catch that opportunity for their benefit. Substitution may also occur because of change in service quality, increase in transit time, and increase in freight rates. The primary factor responsible for substitution is cost factor while service specification comes secondary. Many firms operate in the industry but they all offer different price, and performance and quality will increase the attractiveness of the shipping sector (Mearns, 2010). The presence of high switching cost reduces the threat of substitution, which increase attractiveness of the industry.
Buyer power
One of the strongest factors in the bulk carrier business is buyers. They include clearing agent, importer or exporter, manufacturer of goods or freight forwarder (Kerin, 2006). Bulk carrier business is base on two main factors; quality and price. Due to large number of operators and much competition in this sector, bargaining power of buyer has increased in relation to freight price. TCM has access to a large pool of customers operating individual bulk carriers who lack the expertise to operate efficiently.
Rivalry
Rivalry among businesses exist in every industry and it is sometimes bad because companies have to share profit with competitors and sometimes good because it allows firms to improve service quality and business strategy. There is intense rivalry within the industry due to the relative high number of ship management companies in the industry. However, moderate switching buyer switching cost increases the attractiveness of the industry. Nevertheless, with high industry growth, more players will come into the industry. However, cost leadership achieved by major market players will reduce the attractiveness as new entrants and small players will not cope up with lower cost of market leaders.
SWOT Analysis
The company’s biggest strength is its huge scale and scope. TCM operates more than 70 ships and competes in nearly every market and segment worldwide. This gives TCM a tremendous competitive edge over other competitors in the industry.
The availability of qualified and experienced crew, especially officers is one of the major challenges facing the industry. As one of the largest employers in the industry, TCM group has ready access to crews from different countries, which comply with the latest regulations such as STCW 95 (World Bank Group, 2012).
TMC is a leading Greek shipping management company, involved in the provision of shipping services. The company conducts voyage results analysis, strategic voyage planning, contracting with agents, and budgeting and cost accounting for vessels. In addition, the company also operates ferry and domestic transportation services, cruise ships, and provides warehousing, as well as physical domestic distribution system.
The parent companies of TCM are well-established companies that have been operation for the last 10 years. Columbia Shipmanagement Ltd received the “International Ship Management 2010” an award given by ITM, a well-known ship management company established in Cyprus back in 1978.
Weaknesses
The company’s operations are mainly concentrated within Greek and the EU market. Even though the company has presence across Japan, Asia, and North America, it raised about 95 percent of its revenues from the EU market during the fiscal years 2011 and 2012 (PR, 2012). Overdependence on EU market puts the company at risk as it loses out emerging opportunities in other markets such as Middle East and Asia.
The company has only been in the industry for a short duration following a joint venture agreement between TST and SHL.
Opportunities
The worldwide container market has recorded a strong growth in volume since 2011. In 2010, the market recorded a total container volume of 140 million TEU compared to 99 million 2006 (EIU, 2012). Majority of the demand came from the Asia-Pacific region, especially China. During 2011, the traffic from Asia to Europe increased by 19 percent compared to 2010.
The company has ongoing plans to increase its fleet size significantly in the next coming three years. The company has plans to increase the number of fleets it manages and the number of crew staff.
Threats
Oil prices have recorded an upward trend since 2008 following the global economic recession. The US EIA expects the price of crude oil to average $ 76.6 per barrel in 2014. Because of increase in oil prices, the company has experienced higher bunker costs and land transport surcharges, which produce significant impact on material expenses of the company. As such, TCM has passed half of the cost to its customers through surcharges, while the remaining half has eaten into earnings.
Recommendation
TCM should consider expanding is business into the emerging markets in Asia and the Middle East because this market has prospects for growth in the near future. The company should consider growth through organic strategies by expanding its operations in areas outside Europe to cushion itself from economic fluctuations in developed economies.
Bibliography
Erich H 2001, Financial Analysis Tools And Techniques: A Guide For Managers. New York: McGraw-Hill.
EIU Economist Intelligence Unit (2012): EIU Database.
Hax, A 2010, The Delta Model: Reinventing Your Business Strategy. Springer.
Kerin, R., Hartley, S., Berkowitz, E, & Rudelius, W. 2006, Marketing, 8th ed. NY: McGraw-Hill.
Mearns, K 2010, “Safety Culture and Safety Leadership – Do thy matter? WOS Norway, Sept 2010. http://www.wos2010.no/assets/presentations/0-Key-note-Mearns.pdf
Pallis, A. et al. (2012). Maritime Transport: The Greek Paradigm. Research in Transportation Economics, Vol. 21.
Porter, M., E (1998), On Competition. Boston: Harvard Business School Press.
PR, N 2012, 'The Shipping Management Market 2012-2022', PR Newswire US, 12 July, Regional Business News, EBSCOhost, viewed 29 November 2012.
Tsakos Columbia Shipmanagement (TCM) SA. (2013) Company Website. Available from: http://www.tcsm.gr/en/company
UNCTAD (2011). Review of Maritime Transport, online at http://www.unctad.org/en/docs/rmt2011_en.pdf.
World Bank Group. (n.d.) Country Report. Retrieved from http://www.worldbank.org/
