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8/2/2019 PL-Strategic Challenges in the Shipping Industry
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Copyright 2005 by IMD International, Lausanne, Switzerland
Not be used or reproduced without permission
Strategic Challenges in the Shipping Industry
Propeller Club, Geneva
June 23, 2005
Dr. Peter Lorange, President, IMDThe Nestl Professor
To order Mr Loranges book:http://books.elsevier.com/elsevier/?isbn=0080446116
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2 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Let me touch upon Four aspects of Successful
Shipping Strategies:
Commodity Strategies
Niche Strategies
Overall Portfolio Strategies
The People and the Culture
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3 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Chartering: understand the markets: Timing
In / out
Long / short
Turning points
Purchase + sale of ships many of the same issues
Cost Focus: Operations, crewing, the value chain and
technology Squeeze the costs out
Take advantage of the macro-environment
Exceptional economic growth
Be sensitive to political risk
A dilemma (?): Operations and/or asset play
First, a need to develop a Successful Commodity Strategy!
We know that Successful Commodity Shipping Strategies must build on:
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4 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
1) Spot trade
2) Medium term
CoA
3) Long termCoA
4) Spot trade
5) Reduce Spot
Exposure
Shipping Market Cycle
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5 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Future Expectations Cumulative Distribution of Spot Rates
0%
50%
100%
X (minus) X X (plus)
5% 95%
Market < X (minus) Market < X (plus)
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6 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Distinctive Competences
Leverage Transform
Protect and Extend = Commodity Build
Understand the market
- Timing decisions in/out; long/short
- turning points
Do good better; Improve market position
Managerially:
- Strengthen existing
competencies
- Take out the last costs
New
ShippingMarkets
Established
In Place Must Build
Leverage
Improve market position
Source: Chakravarthy and Lorange
A Strategy Model, applied to Commodity Business
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7 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
For Niche Markets: See opportunities before they are obvious toeveryone else
Customer relationships closeness
understanding
continuity
trust
Key to have: Unique know-hows that the customer can appreciate!
Technological
IT
Commercial
A good Niche Strategy does it build on already establishedstrengths?
We Also Know that There Are Niches:
Key Elements of Niche Strategies in Shipping
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8 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Ships / shipbuilding capacity easy to copy !
The speed of new-buildings!
Technological advances have led to even more capacity!
Implication: You must order new ships that are:
Cheap (in dollar!) Lowest ordering cost!
Good delivery
Know-hows must constantly be updated/developed
in persons heads
systems IT; logistical support
This is Less easy to copy !
Huge investments in specialized fleet and infrastructure: Least easy tocopy
Ex.: Heeremas crane ships
All Shipping Niche Business Platforms Will Become
More Mature Over Time
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9 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Distinctive Competences
New
Markets
Established
In Place Need to add
Leverage Transform
BuildProtect & Extend
Niche
Commodity
Far Out Niche
Niche
A Model for Niche-based Strategic Development in Shipping Firms
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10 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Distinctive Competences
New
Markets
Established
In Place Need to add
Leverage Transform
(Maritime Logistics)
Beijing
(Maritime Services)
- Pool based
- Derivatives; hedging
(Maritime Logistics)
- IT
Example: Klaveness
BuildProtect & Extend
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11 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Distinctive Competences
New
Markets
Established
In Place Need to add
Leverage Transform
BuildProtect & Extend
Norgas China River transport,
Lightering Gas.
Lightening
Norgas pool
(with AP Mller)
Aframax tankers
Lightering Support
(with Teekay)
Example: I.M. Skaugen
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12 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Ex: Maersk SeaLand
Global Sales Force Terminals
IT
Trucks
andhuge ships, with top schedules and speed
and leads in the industry consolidation of players mergedwith Sea-Land, Safmarine, and now P&O/Nedloyd (?)
From Freestanding Ships to IntegratedValue Chain
Ex: Heerema Dockwise heavy lift ships
3 super-mega-crane ships out of 5 in the world
1 super large oil pipe layer out of 2 in the world
Extreme Capital Intensity
Examples of Least Easy to Copy Niche Strategies
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13 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Number of business platforms and relative sizes
Interrelationship among the platforms: Risks
Cash flows stability
Political stability
Market cycle stability
Complement steel (ships) with paper
Shipping stocks hedge
IMAREX freights hedge
Third, The Portfolio Strategy Issue
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14 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Two Overriding Portfolio Strategy Questions
For each shipping niche, business platform
what is the degree of maturity ?
What is the number of business platforms,and interrelationship among these ?
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15 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
CHINA
Are these some common Key Risk Issues Today for
many/all business platforms/segments?
Infrastructure - congestion
Harbours
Roads Steel manufacturing can it drive the growth?
Steel imports
Ore imports
Energy consumption can it be sustained?
Oil imports
Environmental limitations?
Consumer durables exports
Container ship market Terrorism?
Political stability
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16 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
GDP Per Capita, $000
SteelConsumptionPer
Capita,
kgs
Expected Chinese Consumption (UBS Warburg)
Average Consumption for Developed Countries
900
800
700
600
500
400
300
200
100
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
China
South Korea, Taiwan
Europe, Japan, U.S.
Steel Intensity Rises as Countries Get Richer
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Dr. Peter Lorange, President
WorldwideMarkets
Protected Niche
Exposed NicheExposed
Stability of Cash Flows(Volatility)
Stable
(Low)
PoliticalStability
(Risk)
Unstable
(High)
Unstable
(High)
Stable
(Low)
FarstadNorden
Skaugen
Klaveness Hoegh
Corporate Portfolio (Subjective Plots)
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19 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
Have the necessary know-how base
Dynamism; an ability to change incl. internationally
Focused; simple
Keep it all at low costs
From hierarchy to networks meeting place; non-
political
In the end its all about People and Culture!
General Organizational Design Requirements to Shipping Organizations
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21 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
A. Internal entrepreneurs: Bottom-up see business opportunities
Find key know-hows within firm and at the outside !
Lead inspirationally
B. The owner / CEO: Top-down walk-the-talk; involvement
Strategic budget for speedy business development Pump resources into non-commoditization !
C. Process: Top-down and Bottom-up
Interactive Iterative
A Map of Key Actors in Successful Shipping Firms
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22 PL-Strategic Challenges in the Shipping Industry
Dr. Peter Lorange, President
It is not the strongest of the species
that survive,nor the most intelligent,
but the most responsive to change
Darwin
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