Tanker Shipping Market Outlook - Case Study Example

Great LakesI. Major Facts Great Lakes Carriers currently has a capacity issue for diversifying into bulk freight, which would require retrofitting of the bulk carriers to accommodate new container delivering, something not achievable under the current business model. GLC has also visited many ports on the Great Lakes and determined that demand has reduced for grain and iron freight shipments and is forecasted to continue this downward slide. Further, if the business were to select this diversification strategy, how to establish better competitive advantage is a legitimate concern as it relates to pricing and the operational model.

Finally, there would be capacity issues imposed by seaway regulations associated with allowable freight sizes that could further limit profitability and competitive advantage. The business recognizes cost issues in proposing new strategies, evident in recognition of RFID investment and concerns over the pricing model after investing in RFID. II. Major Problem Is diversification the most effective strategy to improve the competitive position and profitability of Great Lakes Carriers or should the business continue with its current operational model for iron ore freight?III. Possible Solutions A.

Consider procurement of new bulk shipping containers in order to give the business more market opportunities. B. Conduct a full-scale marketing program to try to differentiate the business and gain more market share in iron ore shipments to offset the recent and projected declines. C. Consider a new staffing or operational model to reduce the current delivery times from port to port as a means of competitive advantage to make GLC more attractive to maritime customers. D. Conduct a research study on safety risks associated with railroad transport versus lake shipment to present to customers currently using railroad for grain deliveries and enhancing railroad market share in the process. IV. Choice and Rationale Solution A would be the most viable to GLC.

Purchasing the new fleet would not only serve new markets and improve profitability, but it would also give the business more assets. Leszczynski (2009) identifies that new ships maintain almost the same depreciated value after five years as at the time of purchase. Thus, the life cycle of these ships gives more asset protection and would also improve the capacity of Great Lakes Carriers to gain more market share. The low capacity ships required due to size restrictions by regulatory forces on the lakes cost approximately 43 million USD (UNCTAD, 2006).

It is also common practice in the maritime shipping industry to hedge against potential risks, such as demand decreases, through Freight Forward Agreements (Kavussanos, 2003). This could help offset the one-time high investment as well as new market share improvements. V. Implementation GLC should consult with new and used ship sellers to identify the most practical solutions for procurement. With lower cost, land-based shipments becoming more attractive to customers because of their shorter shipping duration, having more fleet capacity would give GLC more options for competitive advantage.

Market research should be conducted before identifying the volume of new or used vessels to purchase to ensure that it is in-line with current demand trends. A quantitative analysis of market environment would assist in this effort. ReferencesKavussanos, M. (2003). “Time Varying Risks among Segments of the Tanker Freight Markets”, Maritime Economics & Logistics, 5(1), pp.227-250.Leszczynski, R. (2009). Tanker Shipping Market Outlook – Mareforum Maritime Italy. Retrieved August 29, 2012 from http://www.

balticexchange.com/media/pdf/ICAPSHIPPING_TANKER_Outlook-L.pdfUNCTAD. (2006). “United Nations Council on Trade and Development”, Geneva, United Nations. Retrieved August 29, 2012 from http://unctad.org/en/docs/rmt2006_en.pdf