What Company Should Do If The Shipping Industry Is Overcapacity?
David Tian, CEO of Meli Marine, is now considering about acquiring 16 vessels from an indirect competitor, Teeh-Sah Holdings, and entering the Asia-North America market. Yet the decision has not been made and some questions are raised to help Meli Marine to analysis the case and measure the gain and loss of the case.
1. Does this potential acquisition of 16 vessels worth the cost?
2. Are the loyal customers powerful enough to fulfill the Asia-North America operation and will they remain loyal regardless of the price?
3. What the company should do if the shipping industry is overcapacity?
4. Is 4500 TEUs really the right size of the ships Meli Marine need?
5. How to solve the problem that highly asymmetrical volumes between shipments from Asia and from North America in trans-pacific lane?
Justification and discussion of relative effectiveness of critical questions
1. As the bar chart in exhibit 2 shows, among all segment of the value chain, vessel operations holds the largest revenue of 102 billion but provides the lowest return on capital of 3%. That means the company should invest a large amount of money but gain few in return. These vessel assets are available because Teeh-Sah would exit this business and focus on terminal operations business. Once a company exits a business, what they are trying to do is maximize their profit (exit). Consider only the revenue and the return rate of capital, shipment origination, terminal operations…