Bargaining Power Of Supplier Essay
Bargaining Power Of Supplier
Suppliers barely make any difference to companies involved in shipping line business, especially who are leading players like “Maersk” in this business. While it may affect to certain extent to small players like Five star shipping company, Varun Shipping company etc. who are struggling to establish within the industry. Many suppliers are such which are borne directly by customers but arranged by shipping lines like pesticide, wooden pallets, container repairs and truck transportation due to corporate contract or link ups of companies with service providers. While there are cases when these same services are borne by shipping lines but then these charges are included in freight rate which would be higher if the suppliers were not arranged by company. “Maersk” supply service expects a lower result than in 2010 due to lower contract coverage and weaker spot market rates than at the beginning of 2010.
Another supply which is related to loading of containers on third party vessels is very important here because this is the only supply where shipping lines have to face the bargaining of suppliers. Not all shipping lines own the vessel and therefore they hire the service of other companies, to load their containers for different destinations. “Maersk” is the largest container operator in Kandla port. But its own vessels are not operating from Kandla due to drift problem and therefore they hire the services of third party feeder vessels to load its containers till JNPT [Jawaharlal Nehru] port in Mumbai, from where “Maersk” mother vessels are operating across continents. In this case “Maersk” may have to pay extra money if demanded by ship operators.
While this is not the case with MSC [Mediterranean Shipping Company] which has its own small vessels operating from Kandla to different gulf locations. But if we move to location like JNPT port in Mumbai, the situation is totally different. “Maersk” vessels are the biggest here operating among other carriers and those small carriers are using slot on “Maersk” vessels for transporting their cargo. There are other supplies like loading/ unloading of containers from vessel ie, movement of containers to CFS (container freight station) and vessel towing which are provided by port authorized suppliers and companies. Port authority charges fixed amount towards these handling from shipping lines and shipping company charges the same from customers after adding their profit margin.
Bargaining Power of Buyer
Buyer is one of the strongest factors in shipping line business. Buyers may be in form of importer or exporter, clearing agent, freight forwarder or manufacturer of goods. Sometimes manufacturer himself acts as an exporter or importer if not, then trader acts on behalf of manufacturer of goods. Container line business is based on two main core factors price and quality of service. Price refers to freight rate at which one container is decided by shipping company to transport from one place to another. Due to much competition in this sector and limited number of operators, bargaining power of buyer has increased in relation to freight price. Almost all shipping lines have service to Jebel Ali (an important transit hub in Dubai) from India, and customer is sure to get very competitive rate for this location from market. For such locations customer are virtually like king but when it comes to transporting cargo to far Europe or America, then this power is transferred to companies operating in those regions.
Therefore “Maersk” has strategized the businesses in such a way to get maximum profits from service to odd or far reaching areas and make normal profits from operation to common areas like Jebel Ali. Another factor Service refers to fast processing of documents, bill of lading and prompt loading and movement of containers etc. It is rather difficult for customers to get better quality of service than getting competitive freight rates. In this world of technology every company is trying to adapt to new technology in their day to day businesses like e-processing of documents and fastest data entry to name a few. “Maersk” is so technologically advanced in this field, that all its data processing is being done electronically by back office and customers are able to access all information relevant to shipment though dedicated space available on company website.
Electronic processes are shipping bills, vessel certificates, freight invoices and bill of lading in encrypted format, once the payment is done by customer either electronically or at “Maersk” local office. Companies like APL and MSC do have electronic processing systems but are not fully fledged and as a result much of the work is still being done manually. Other sections of buyers which may affect container line business are freight forwarders or clearing agents, with rapid expansion of shipping industry and import/export businesses. Many agents acting as freight forwarders have came up in market to share the profit in form of commission. These agents earn commission by way of collecting excess freight from exporter than charged by shipping lines. It is relatively easy for shipping lines to entertain these agents, so there is no difficulty of approaching different small exporters.