General Maritime Corporation: Strategic Plan - Case Study Example

General Maritime Corporation: Strategic Plan Introduction General Maritime Corporation (GMC) is one of the leading international shipping companies that specialises in providing seaborne transportation for crude oil and petroleum products. The company was established in 1997 by Peter Georgiopoulos and has overtime experienced incredible growth and success. Currently, the company operates a fleet of 12Suezmax, 7VLCC and 6 Aframax vessels. In addition to this, the company has 2LRI and 1MR2 product tankers (GMC 2013; GMC 2013b). It is estimated that the company’s fleet have a total carrying capacity of approximately 2.9million deadweight tonnage (dwt). The company’s fleet operates in almost all international markets. Some of the key areas that the company operates in include; the Mediterranean, the Arabian Gulf, Caribbean, Pacific Rim, the Black Sea, the Gulf of Mexico, West Africa, South and Central American, the North Sea and the Baltic Sea. GMC’s success over the year has been attributed to its contracts and business association with major international companies such as; Chevron Corporation, Hess Corporation, CITGO Petroleum Corporation, Sun International and Exxon Mobil Corporation among many others (Plunkett 2009; GMC 2013b). Although GMC has experienced tremendous growth and success over the years, it has also succumbed to numerous challenges affecting the wet bulk shipping industry. Some of the common challenges affecting company such GMC which operate in the wet bulk industry include; fluctuating crude oil and petroleum prices, strict regulations and numerous technological demands (IMO 2012; Kumar 2009; Lorange 2005). In 2011, the company filed for bankruptcy following an oversupply in the shipping industry which caused the company to incur a substantial amount of loses (Reuters 2011). Although the company managed to come out of bankruptcy in 2012, it still experiences numerous challenges that threaten it competitive edge in the wet bulk shipping industry. This paper proposes a strategic plan that GMC can adopt in order to enhance its competitive edge in the market and overcome the challenges in the wet bulk industry. Foremost, this paper will evaluate the external environment that GMC operates in and the challenges that this environment poses. Secondly, it will analyse the competitive advantage of that GMC has within the environment that it operates in. Subsequently, this paper will outline a sound strategic plan that GMC can employ in order to overcome challenges in the environment that it operates in and take advantage of the available opportunities. Lastly, this paper will evaluate in fiscal terms the benefits that GMC likely to accrue if it employs the strategic plan proposed in this paper. External environment Generally, GMC operates in the wet bulk shipping industry. This industry is susceptible to several legal, economic and technological challenges that significantly affect the business operations of key players such as GMC. As a result of the high risks that come with the transportation of crude oil and petroleum products, the environment that GMC operates in is highly regulated. Over time numerous strict regulations have been imposed on companies operating in the wet bulk industry. Most of these regulations seek to mitigate or prevent environmental degradation and ensure safety and security in seaborne transportation of crude oil and petroleum products. The International Maritime Organization (IMO) is one of the regulatory bodies mandated with the task of enforcing the shipping regulatory framework in order to ensure maritime security, technical cooperation, efficiency in shipping and enforce environmental protection. In recent times, IMO imposed stricter safety and quality regulations for shipping companies such as GMC that carry crude oil and petroleum products (GMC 2013c). For example, in 2010, IMO put a ban on single hulled tankers. This ban was set to fully come into effect in 2015 however, some countries like Korea, Philippines, Australia and European Union countries officially barred single hull tankers from accessing their port. Such regulatory impositions put a lot of pressure on shipping companies like GMC as they are forced to comply with the introduced regulations. Most companies operating in this industry have to raise their standards of professionalism, safety and environmental responsibility or else they will be barred from operating. Some small companies which have failed to meet the set legal standards have been consolidated by large shipping companies (GMC 2013c; Lorange 2005). Moreover, the performance and overall profitability of companies such as GMC which operate in the wet bulk industry is heavily hinged on trade flows particularly those revolving around crude oil and petroleum product prices. GMC’s major clients include large oil consumers, producers of petroleum products , oil traders, oil companies and government agencies. Thus, the performance of the company is heavily dependent on the demand of crude oil and petroleum products. If the demand of these products is affected the impacts will thus be directly experienced in GMC’s business (GMC 2013c). Recently, there has been unprecedented rise and fluctuation in oil prices. This trend has negatively impacted on the profit margin and economic growth of crude oil and petroleum shipping companies like GMC. For instance, as a result of the rise in oil prices the demand for shipping in 2011 declined. Additionally, there was a 39% increase in voyage expenses aggravated by the increase in fuel costs .Consequently, in the first quarter GMC’s net voyage revenues decreased by 10%. Furthermore, the company’s net loss increased to $31.5 million from $9 million in the previous year (Pattanaik 2011). According to Moody’s Investors Service (2012) the outlook of the global shipping industry in future is negative. Due to increasing oil prices and sustained oversupply of vessels for the next 12-18 months the profit margins of most shipping companies may reduce or stagnate. Nevertheless, in emerging markets such as China and Japan the demand for oil shipping is steadily on the rise (TWST 2003). Technology plays an important role in the market that GMC operates in. In order to gain a competitive edge over other key players in this market most companies opt to enhance their performance through technological advancements. It is acknowledged in this market that improvements in shipping technologies help to boost performance. Basically, shipping technologies improves energy efficiencies, communication, technical operation and monitoring of systems in real-time. The adoption of technologies in this industry also enables companies to minimise losses that come as a result of technical problems. Although technological advancements play a significant role in this industry, it also contributes to increase in spending and competitiveness. Companies operating in this industry are constantly under pressure to acquire the latest technologies in order to gain a competitive edge over other players (Blanpain, 2010; IMO 2012; Stopford 2002). In the industry that GMC operates in, some of the major competitors include; Frontline, Teekay Corporation and Overseas Shipholding Group. Frontline operates 81 vessels with a total tonnage of 19.35 million dwt (Frontline 2013). Teekay Corporation operates in the charter and spot markets. The company’s vessels have a capacity of 4.2 dwt (Teekay 2013). On the other hand, Overseas Shipholding Company operates a total of 113 vessels with a total capacity of approximately 11 million dwt (OSG 2013). Evidently, these companies pose as competition mainly because they have vessels with larger capacities than GMC. Moreover, unlike GMC which uses midsized Suezmax and Aframax vessels, other competitors like Teekay and Frontline focus on large carriers or a mixture of midsized and large carriers. Competitive advantage In the wet bulk industry, GMC is among the leading companies. Some of the company’s key competitive strengths in this industry include; focused acquisitions, wide and strong presence in the market, market foresight and high quality vessels. Over the years, GMC’s business strategy has been strongly focused on acquisitions. The company has directed its efforts towards being a consolidator within the crude tanker industry. It has made acquisition in the Aframax, Suezmax and VLCC market segments. This has in turn helped the company to enhance its vessel capacity, increase its fleet size and competitive edge in the market (GMC 2012d). Currently, the company operates a fleet of 12Suezmax, 7VLCC and 6 Aframax vessels. In addition to this, the company has 2LRI and 1MR2 product tankers (GMC 2013; GMC 2013b). It is estimated that the company’s fleet have a total carrying capacity of approximately 2.9million deadweight tonnage (dwt) (Plunkett 2009). Secondly, GMC’s competitive strengths lie in its high quality vessels. The company operates a wide range of high quality tankers focused in the midsize market segment. GMC also accentuates on regular ship maintenance and working with highly-skilled crew members. Consequently, the company has over the years managed to develop and maintain a first-rate environmental responsibility and safety record (GMC 2012e). In addition to this, the company has adopted recent shipping technologies that have enabled it to improve its energy efficiencies, communication, technical operations, monitoring of systems in real-time and minimise losses (GMC 2008). Moreover, GMC has wide and strong presence in the market. The company’s fleets operate in almost all international markets such as the Mediterranean, the Arabian Gulf, Caribbean, Pacific Rim, the Black Sea, the Gulf of Mexico, West Africa, South and Central American, the North Sea and the Baltic Sea. Furthermore, as a result of the GMC’s large and modern fleet size, first-rate safety record and environmental responsibility, the company has developed long-term business relations with major international oil companies such as; Hess Corporation, Exxon Mobil Corporation, Chevron Corporation, CITGO Petroleum Corporation, Sun International and among many others (Plunkett 2009; GMC 2013b). This has in turn enabled the company to enhance the utilisation of its vessels thus securing its returns (GMC 2012d). Lastly, GMC’s market foresight also acts as a key competitive strength. Initially, the company used to operate in the spot market. As an operator in the spot market, the company used to hold short-term contracts with particular clients for shipping crude oil and petroleum products on short-notice at different rates. Although the spot market is generally lucrative, it is extremely volatile and susceptible to numerous risks. Consequently, GMC changed its market strategy (Funding Universe 2012). Currently, GMC has divided its fleet between term charter markets (long-term contracts) and spot markets (short-term contracts). This has enabled the company to optimise on its returns (GMC 2012e). Strategic plan The analysis conducted in the above section pertaining to the competitive advantage of GMC and the challenges that the company experiences in the wet bulk shipping industry, conveys several challenges that the company needs to overcome and several opportunities that the company should capitalise on in order to enhance its competitive edge in the market. Some of the challenges that the company needs to overcome include; Decreased demand of oil transportation due to increase and fluctuations of oil prices Increased costs of operation Intense competition from key players in the market who have large vessel capacity On the other hand, some of the opportunities for growth that the company can capitalise on in order to enhance its competitive edge in the market include; Enhancing its presence in the market especially in new emerging markets such as China and Japan. Aggressive marketing in order attract more clients in both the spot and charter market segments Diversification of the company fleet by incorporating both midsized and large sized vessels. In order for GMC to overcome the challenges outlined and capitalise on the opportunities highlighted in the above section, this paper proposes that the company should adopt the following action plan; Financial Restructuring Basically, restructuring entails changing the existing structure of an organisation. According to Zu (2009), restructuring is often motivated by drastic changes in the business environment and is often conducted in an attempt to enhance or restore a company’s competitiveness. Due to the negative changes in the wet bulk shipping industry, which have led to increase in oil prices and decreased demand of crude oil transportation, it is crucial for GMC to undergo restructuring in order to decrease its costs of operation, minimise oversupply and maintain its competitive edge in the market. GMC’s restructuring process should focus on reducing some of its fleet operations so as to prevent oversupply and reduce costs of operation. The company should also downsize its workforce so as to decrease its costs of operation and expenditure (Cascio 2005). Additionally, the company should direct a substantial amount of its revenue towards debt payments or loan servicing in order to reduce interest payments in the long-run (Gopinath & Lad 2012). Aggressive Marketing In the market that GMC operates in, there is intense competition from well established companies with strong presence in the market and large fleets. Some of the companies that pose major competition include; Frontline, Teekay Corporation and Overseas Shipholding Group. In order for GMC to enhance its competitiveness in the market by attracting new clients and increasing the demand of its services so as to prevent oversupply, the company should embark on an aggressive marketing campaign. When marketing, the company can leverage on its position as an outstanding service provider with first-rate standards of professionalism, safety and environmental responsibility (GMC 2008; GMC 2012d). Expansion into new markets The current state of the wet bulk shipping industry is characterised by a reduced demand in shipping of crude oil and petroleum products. In order for GMC to increase the demand of its services so as to prevent oversupply, the company should expand and capitalise of new emerging markets such as China and Japan. As a result of GDP growth in China, there is a steady increase in demand for shipping crude oil and petroleum products (TWST 2003). Moreover, following the fall of nuclear plant output in Japan, it was predicted that the oil demand in Japan is bound to triple (Goswami & Tan 2011). Therefore, GMC can tap into these markets in order to increase the demand of its shipping services. Diversification of company fleet GMC’s major competitors such as Frontline, Teekay Corporation and Overseas Shipholding Group have over the years managed to gain a competitive advantage over other players in the market by diversifying their fleet to incorporate both midsized and large sized vessels (Frontline 2012; OSG 2013; Teekay 2013). Currently, GMC only operates midsized vessels. In order for the company to keep up with the other competitors in the market, it should diversify its fleet to incorporate both midsized and large sized vessels. This will also enable the company to meet the specific needs of its customers and tap into new markets thus increasing the demand of its services. Benefits of this strategic plan In 2011, it was estimated that due to an increase in oil prices , there was approximately 30% increase in GMC’s voyage expenses. Moreover, the company’s net loss was approximately $31million (Pattanaik 2011). Financial restructuring will enable the company to minimise its voyage expenses at least by 20%. Moreover, the restructuring process will enable the company to minimise its loses by at least 15% in each quarter. Thus it is expected that by the end of the first quarter in 2013, the company would have minimised 45% of its losses. Additionally, if the company’s directs its revenue towards the repayment of its loans, it will be able to minimise its interest rate payment by at least 5% in each quarter. Aggressive marketing and expansion into new markets will enable the company to enhance its profit margins by at least 10% in each quarter. In 2011 GMC’s net voyage revenues decreased by 10 %( Pattanaik 2011) however , when the company embarks on aggressive marketing and expands into new markets it is bound to increase its revenue by at least 10% in each quarter. Conclusion This paper has evaluated the external environment that the General Maritime operates in and the competitive advantage that the company has in this market. The findings established in this paper show that some of the challenges that the company needs to overcome in the environment that it operates in include; increased costs of operation , intense competition and decreased demand of oil transportation due to increase and fluctuations of oil prices. On the other hand, opportunities for growth that the company can leverage on include; emerging markets such as China and Japan. This paper recommends that in order for GMC to overcome the challenges identified and capitalise on the opportunities highlighted , the company should adapt a strategic plan that involves financial restructuring, aggressive marketing, expansion into new markets and diversification of company fleet. 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