A1. Threat of Entry: The container shipping industry is a challenge one for both new and
existing businesses.
Threat of entry is relatively low, given that the industry is one typified by high capital
requirements. As an
asset-intensive and network-based business, new entrants face challenges in getting
financing, in achieving
maintenance cost saving (through standardization and economy of scale), in building
network and acquiring
trust from customers. Operation and capital costs are high, with nearly 50% investment
strapped in fixed
costs. 20%-40% of costs come from fuel costs, which are prone to fluctuations and not
fully transferable to
customers. However, in vessel operations as is seen in Meli’s case, the huge capital
requirements can be
slightly reduced through leasing agreements. Further, entry by established container
carriers are less
restricted, and “dumping of capacity” or “cascading” can be a big threat to industry’s
profitability.
A2. Power of Customer: Since container carriers offer generally similar services,
customers in this industry
have a lot more negotiation power. Container carriers are dependent on key customers –
freight forwarders
and major retailers – to make most of their shipment. Indeed, these customers contribute
60% of shipping
volumes in 2007.
A3. Bargaining Power of Supplier: Suppliers of vessels carry somewhat less bargaining
power in the value
chain, given the widespread market for second hand and leased containers. This can be
seen by the somewhat
low ROCE of 9% for container delivery players. On the other hand, supplier of terminal
services look more
powerful, given the dependence of ships on each port. For instance, although one vessel
can dock at another
harbour, switching harbours will be expensive for ships due to added fuel cost,
