Questions for The Liner Shipping Industry case (seminar 3): Q1: Define the Liner Shipping industry

and each of the five forces of the Porters 5 forces model. Q2: Analyze the attractiveness of the Liner Shipping Industry. Define Liner Shipping Industry: This is part of the shipping industry which offers regular shipping schedules on fixed routes with published prices. Example: Maersks AE1 service: ship sailing weekly from kobe, Japan to Bremerhaven, Germany Most of the companies concentrate on high volume routes between major ports to achieve high frequency sailings. Smaller shipping firms focues on shorter or less busy routes or on transshipment cargo. Transshipments cargo was offloaded at major ports by the liners, and reshipped to smaller regional ports by smaller feeder shipping mirrored the hub-and-spoke system of the airline industry. Sailing is irrespective of demand. This increased the size of fleets required for regular sailings. Since operating cost for the each ship did not vary much in relation to the number of containers carrier, there was more incentive for firms in this industry to reduce prices to utilize as much capacity as possible. All ship lines joined alliances to coordinate schedules. Sharing land-based equipment and other facilities provided members of these alliances with significant savings. There was high economies of scale. Industry is highly fragmented with top 5 shipping lines having a collective market share of 26% and top 20 lines with 56%. There is some competitive price setting as U.S Ocean Shipping Reform Act of 1998 deregulated shipping and permitted shipping line sand customer greater freedome to negotiate freight contracts.

Porters five forces

Rivalry among competition firms: high Liners who were not members of the TSA typically set their prices below the conference rates. But Less: Due to alliances and conferences they help one another and work towards economies of scale. favorable Bargaining power of suppliers: Shipbuilding industry: Overcapacity in this industry in 2008 Containers builders: Oil suppliers: fuel accounted for 60% of the total cost of operating mid-sized liner. Bargain powers of buyers: High In contrast to rising costs, freight rate increase were much more resistant and price increases were generally smaller. Many shipping lines coule not pass the increased cost to their customers (increased post fees and delays, effectively increasing cost and reducing capacity) Shipping rates were publishes for each route and hence were widely accessible to customers, competitors and intermediaries. As all leading lines offered frequent sailing on the main routes, similar rates and reliable services, customers exhibited little loyalty to shipping lines, shifting their business based on prices and schedules. Customers were generally high-prices sensitive.

Vast majority of shipping lines customer were small and accounted for very small shares of shipments, so that each major line dealt with thousands of customers each year. Threat of new Entrants: High For potential entrants, registration, staffing the ships, and obtaining other necessary services and approvals did not pose significant challenges, even for small shipping firms. Ancillary services and port services were readily available, although costs were substantial. There were few constraints on shipping firms introducing new routes or sailing to ports of their choice. Govt provided taxes incentives to support their national lines Pricing power over the shipping lines by logistics companies? Thread of substitutes products: Air cargo is faster for time-sensitive products such as electronic