Discuss about the Shipping and Logistics Management.
The shipping industry is very crucial especially in today`s commercial world where globalization is being realized and volumes of international trade have increased over the years. It is therefore important for optimum productivity and efficiency to be realized in the shipping industry. More than 95% of all international/ cross boarder trading takes place through water and these goods are carried by freight ships (Lim, 2016). These goods include raw materials which are used for manufacturing, machines and equipment as well as consumer goods. The choice of transportation by the shipper is influenced by a variety of factors which affect the shipping logistics. Some of the logistics that shippers consider include; cost of transportation, efficiency of the means, reliability, the transportation time as well as quality of services offered by the shipping company (Pardalos, 2009).Despite the large size of this industry and the huge profits that companies make, there are also major risks associated with this business. The high levels of risk and large capital requirement make it necessary for individual shipping companies to form alliances. Another factor that contribute to formation of alliances in the shipping industry is for the companies to minimize cost and be able to market their business together more effectively. Due to this reason, it is very important for Hapag-Lloyds to remain in The Alliance. Below is a detailed discussion of benefits and disadvantages of remaining in a shipping alliance.
One of the major benefits of collaborations between companies in the shipping industry is the joint marketing activities. Companies in the shipping industry need to advertise a lot. This is due to the high level of competition in this industry (Konings, 2008). It therefore makes it necessary for any company operating in the industry whether new or existing to put aside a substantial budget for marketing activities. Since the marketing costs are high, it is therefore very necessary for the companies to come together and carry out joint marketing operations. This will go a long way in reducing the cost for the companies (Forte, 2013). This will in turn help the companies to lower their shipping charges and therefore attract more customers. Joint marketing by shipping companies is also more effective than individual companies marketing. This is because the companies will be able to pull their resources together and therefore can pay for better means of advertising which will reach more potential customers.. It is therefore crucial for Hapag Lloyd to remain in The Alliance so as to enjoy the benefits of joint marketing.
Another major benefit of shipping companies being in alliances is due to the operational issues such as sharing of slots, sharing of vessels and joint services (Panayides & Wiedmer, 2011). In the fleet sharing services for companies in a shipping alliance, specific companies handle slot capacities in each voyage depending on their contribution to the number of ships in the alliance. The companies in the alliance are able to share TEUs depending on the volume of goods they are transporting to a particular route. Each company allocates their own capacities but the stowage plan is prepared by the ship operator for all voyages. If a one of the companies for example in The Alliance was shipping goods to the port of Miami and there is extra capacity in the ship, the extra capacity that exists in the ship can be allocated to another company in the alliance which intends to transport commodities to the same destination. Companies can also manage their slots through slot charter or slot purchase (Lim,2016). This arrangement ensures that the companies belonging to the alliance buy the slots at a cheaper price compared to when they buy from a company outside the alliance. These arrangements help companies within the alliance to achieve their expected carrying demand. The companies in a shipping alliance are also able to increase their profits margin. This happens due to the savings that the companies are able to make by sharing slots in the ships. For this to work, its important for companies in a shipping alliance to have a concrete slot allocation plan. Hapag-Lloyds should therefore remain in the alliance so as to enjoy additional profits accruing from extra saving by sharing of slots.
Another major benefit that Hapag-Lloyds would enjoy by remaining in The Alliance is that of joint services for companies in the alliance. Joint Services Corporation for shipping companies in the same alliance is very strategic (Panayides, 2011). This is because; customers of the shipping companies are able to enjoy efficient services from a central point instead of seeking for the same services from different companies with different locations and procedures. These saves the customer both time and effort they would have spent on getting the services from different shipping companies. This offers customers convenience (Lun, 2010).The quality of services provide to customers when the companies decide to offer the services jointly is much more improved. This is because, the services are centrally coordinated and therefore the likelihood of misunderstandings and miscommunication between customers and the company is greatly reduced. Improvement of customer services through the shipping alliances will help in building consumer loyalty among existing customers and therefore the company is able to maintain its existing customers (Talley, 2012). High quality services will also attract new clients for the shipping companies in the alliance and therefore resulting to higher profit margins. The brand of the individual companies will also grow as result of the exemplary services offered by the alliance.
Companies in a shipping alliance are also able to carry out joint infrastructural investments. This happens when the shipping companies in the alliance pull their resources together and make joint investment in assets such as freight ships (Agarwal, 2010). The investment carried out by companies in a shipping alliance is mostly for investments with large capital requirements which would be difficult to be raised by a single company. Joint investments are important in this industry because they help in distributing the risk among the companies (Talley, 2012). Risk distribution will therefore mean that in case of loss, the companies involved in the investment will share the cost depending on their capital contribution. This therefore makes it easier for a company operating in this industry to continue operations even if it does not recoup its initial cost of investment. Hapag-Lloyd will also be able to enjoy the low cost of capital. This is because other means of obtaining capital for investment are very expensive. An example is obtaining loan from banks which charge very high interest rates.
Despite the many advantages that come with Hapag-Lloyd remaining in The Alliance, there are also various shortcomings that the company will face by remaining in The Alliance. The following are the disadvantages of shipping companies being in a shipping alliance.
One of the major disadvantages of the company remaining in the shipping alliance is the loss of control. Remaining in the shipping alliance for Hapag-Lloyd will mean that the owners and the managers will not be in complete control of the activities of the company. This is because the company will be obliged to obey and honor the agreement signed in the alliance charter which requires companies to carry out most of their activities jointly. The company has to operate in relation to the schedules of the alliance and the allocation of slots in the vessels is done by the alliance. This therefore makes the company less flexible in its operations and daily activities (Bryson &Daniels, 2007).
Another significant shortcoming of remaining in The Alliance for Hapag-Lloyd is that the carrying out of joint investment activities by the company makes it very difficult for the company to control its growth and development. This is due to the fact that by the company remaining in the alliance, it becomes difficult to pursue its own growth plans. Being in the alliance means that the company will have to give priority to the projects being undertaken by the alliance rather than their individual activities. The company may eventually skid off its path and vision and may eventually fail to achieve its business objectives. This may also lead to the company becoming bankrupt.
By remaining in The Alliance, Hapag-Lloyd may not be able to achieve its objectives in relation to marketing and advertisement. The joint marketing efforts mean that the whole alliance will be marketed as opposed to marketing individual companies (Jong, 2016). This may be a disadvantage to individual companies whose volume of business has not increased as a result of being in the alliance (Schwab, 2015). The joint marketing efforts may also stall the growth of the individual company’s brand. This may hurt the long term objectives of the company.
By Hapag-Lloyd remaining in The Alliance, the company may suffer losses and lose customers in case the alliance fails to deliver high quality services to its clients. The shipping industry is driven by the level of efficiency and the quality of services offered to customers (Lun, 2010). Due to the changing market and consumer trends in this industry it’s important for companies to remain focused on consumer needs. Therefore if the alliance fails to remain innovative and focused on consumer needs, the alliance may lose its customers after some time. This will affect the individual companies in the alliance and it may result to losses and eventually bankruptcy.
Conclusion
From the analysis, it is very vital for companies in the shipping industry to form shipping alliance due to the various advantages that the companies in these alliances enjoy. Some of these advantages include minimizing costs through sharing of facilities, joint investment which helps the companies to undertake huge investments at a low cost and the joint provision of services which results to increased efficiency. There are also disadvantages of being in alliances such as loss of control over management of the company, and increased dependency on other members of the alliance. A company in the shipping industry should therefore analyze and weigh the advantages and disadvantages and being in the alliance before deciding to join any alliance. For Hapag-Llyod, the advantages outweigh the disadvantages and therefore the company should remain in The Alliance.
References
Lun, Y. H. V., Lai, K., & Cheng, T. C. E. (2010). Shipping and logistics management. New York: Springer.
Schwab, C. (2015). Horizontal collaboration in the maritime industry: Ports and terminals.
Bryson, J. R., & Daniels, P. W. (2007). The handbook of service industries. Cheltenham, UK: Edward Elgar.
Pardalos, P. M., Chaovalitwongse, W. A., & Furman, K. C. (2009). Optimization and logistics challenges in the enterprise. Dordrecht: Springer.
Talley, W. K. (2012). The Blackwell companion to maritime economics. Chichester, West Sussex: Wiley-Blackwell.
In Lee, C.-Y., & In Meng, Q. (2015). Handbook of ocean container transport logistics: Making global supply chains effective.
Lim, J. (2016). The Effect of Alliance Partnership on the Alliances Performance of Global Alliances and Joint Service in Liner Shipping Companies. Korean Logistics Research Association, 26(5), 35-44.
Notteboom, T., Institute of Transport and Maritime Management Antwerp., & Asian Logistics Round Table. (2011). Current issues in shipping, ports and logistics. Antwerp: UPA University Press Antwerp.
Agarwal, R. & Ergun, Ö. (2010). Network Design and Allocation Mechanisms for Carrier Alliances in Liner Shipping.
In Forte, E., & Grimaldi, G. (2013). Economics and logistics in short and deep sea market:
Konings, J. W., Priemus, H., & Nijkamp, P. (2008). The future of intermodal freight transport: Operations, design and policy. Cheltenham, UK: Edward Elgar.
Panayides, P. & Wiedmer, R. (2011). Strategic alliances in container liner shipping.
Jong-Sub Lim,. (2016). The Effect Strategic Alliances on the Performance in Container Liner Shipping Companies. Journal Of Distribution Science, 14(6), 99-106. https://dx.doi.org/10.15722/jds.14.6.201606.99
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