Orient Overseas Container Line (OOCL)

ORIENT OVERSEAS CONTAINER LINE (OOCL)

01.BRIEF DESCRIPTION OF OOCL.

Container shipping is most popular types of merchant shipping over the world. Due to size, use, and accessibility, it is famous and convenient for transporting from one place to another place to all customers from small trader to big trader. OOCL is the leading container main line operator in shipping industry having own information technology facilities.

OOCL is a wholly-owned subsidiary company of OOIL (Orient Overseas International Limited) group which listed on Hong Kong Stock exchange as a public limited company. OOCL is one of the world’s largest integrated international container transportation, logistics and terminal companies having global brand images in container shipping (OOCL, 2010a)

The founder of OOCL is CY Tung who dreamed to create Chinese merchant fleet in international shipping. In 1947, he succeeded when first ship with all Chinese crew reached in USA and Europe under the name of his company Orient Overseas Line (OOL). Due to the demand of container vessel and age of containerisation in shipping, OOL renamed to OOCL in 1962. Today, it has more than 230offices in 58 countries around the world and the present Chairman is CC Tung.

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OOCL Mission Statementis “To be the best and most innovative international container transport and logistics service provider; providing a Vital Link to world trade and creating value for our customers, employees, shareholders and partners” ( OOCL,2010b). The core values of OOCL for people or employee of the company, customers and wants to maintain high standard of services through community responsibilities.

OCCL is a renewed container carrier who has own mother and feeder vessel, rail track, containers, trailers and terminals. In December 2008, OOCL awarded “Best of the Best” ocean career by World Trade Magazine of USA (Shister, 2008).All vessels of OOCL achieved the quality certificate of QUALSHIP 21 issued by US Coast Guard.

However, recent world recession covered OOCL also and it’s container traffic fell 17.2 per cent compared with the first half of 2008, while revenue fell 37.2 per cent to $2.05bn and operating loss for the half of $197m, against a $216m profit in the first half of 2008 ( Lau and Wright,2009).

United Nations Conference on Trade and development- UNCTAD positioned OOCL within the leading container transport operators of 20 MLO (Main Line Operators).

Figure 1 (Table) Performance of OOCL in world container trade – 2004-2008 (UNCTAD,2010)

The position of the OOCL is world container industry is fluctuating highly year by year. There is no constant improving that means growth in performance indicator by UNCTAD. However, they are increasing the number of vessel and container capacity (TEU capacity) in every year. Within 5 years they increased the number of vessels approx 50% and capacity over 68%.

As a total logistics service provider, OOCL’s international freight consolidation and logistics service unit, OOCL Logistics, provides its customers with innovative freight management services and leading-edge IT solutions. OOCL China Domestic Ltd. offers extensive domestic distribution services and supply-chain management to customers in China, the growing market which OOCL has been serving for over 50 years ( OOIL,2010 )

OOCL is renowned for its pioneering approach to developing intermodal connections. All means of intermodal transport are carefully integrated with trunk ocean services to offer seamless connections across continents using feeder services, barges, trucks and block trains (OOCL, 2010c)

02.STRATEGIC MANAGEMENT

People have different views for understanding, developing and implementing strategy economically and timely to gain special advantages in business. Before taking any strategy, need to justify and assess the organisations present situation especially internal environment of the organisation. After that, external environment will help to set a preliminary plan for going forward. This is very important to assess the situations by marketing mix and political factors also. In a study (Johnson et all, 2005) of strategic exploration found that, there are three strategy lenses: design, experience and ideas which are useful to develop a strategy in a organisation.

Model of Strategic Management (Johnson et all, 2005)

The above model indicates that strategic management indicates the strategic position of a organisation depends on the environment and its capabilities to adapt also its expectations. The choice of strategy may be in business level or corporate-level; it may be internationally for the development of the organisation by following the strategic direction or methods. Furthermore, need to organise, enable the strategy into action to get competitive advantage. The research and development of the strategy based on the some environment analysis such as SWOT, PESTLE , value chain , Porter’s Five forces mode and etc. By applying these organisations can find the position where it placed and take effective measure to correct modify for developing the situation.

03.SWOT ANALYSIS FOR OOCL

In a study Stacey (2000) stated that “SWOT analysis is the list of an organisation’s strengths and weaknesses indicated by an analysis of its resources and capabilities, plus a list of the opportunities and threats that an analysis of its environment identities. Strategic logic obviously requires that the future pattern of actions to be taken should match strengths with opportunities, ward off threats, and seek to overcome weaknesses.”(P-5). In addition, Strengths (Koch, 2000) can serve as a foundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats

Container Shipping is the most complicated globalized industry which has to compete with internal competitors like other container operators also homogenous business like dry bulk or tanker operators. Moreover, it has a big competition with air transportation. Customer always wants to know the good and bad matters of the company before stuffing his cargo. By SWOT analysis of a company we can easily find out the negative and positives of an organisation. So, SWOT analysis is very important for developing company profile by correcting present weaknesses and aware the threats internally, externally and environmentally.

OCCL has huge competition with other operators nationally and internationally and need to manage small shipper or big customer, moreover, fluctuation of international trade create the environment to forecast its all sight. Furthermore, it is a customer focused organisation. SWOT analysis will help to attract the customer for better business also develops the organisation economically and socially.

04.SWOT ANALYSIS

A. STRENGTHS OF OOCL

1. OOCL is a subsidiary of a global group of company OOIL group, Hong Kong. They can take any organizational or financial help from the group even from the government.
2. Offering quality services in Asia, Europe, America and Australasia where container service is highly demanded as quick ocean transportation and easy access to shipper or consignee premises.
3. Quick and speedy service, transit time is less, easy connection, global service & network
4. Pioneer in IT (Shipping).Very strong in information technology. Vendor services are performing by specialized software “Operationsmart”, “Depotsmart” and “Schedulesmart”. Vendor can easily log on and contract with OOCL from anywhere by using this facilities. Any customer can know his cargo position by this link. All vessels are handling by using information technology.
5. Has own carriers (Mother and feeder vessels), rail track ( Owned in China and partnership in America & Europe)
6. Global brand image & identification to trader, importer and exporter.
7. Trained and skilled employees who’s are really professional & devoted in their jobs.
8. Market leader in refrigerated container trade and temperature -controlled environment over ocean, rail and load line.
9. Strong intermodal network in Asia, Europe and America.
10. “DGsmart” which cares the dangerous goods customer. OOCL provides training for all for handling these types of cargo

B. WEAKNESSES OF OOCL

1. High competition and market fluctuation. Insignificant market growth of the line. No constant business growth in the industry.
2. High freight & costs. Peak season surcharge on service routes.
3. Limited allocation of container in various routes and country
4. GSA trade in maximum country. No direct trade for maximizing profit and mass customization.
5. Imbalance of equipment. Huge lease container.
6. Africa service is not available.

C. OPPORTUNITIES OF OOCL

1. OOCL can increase the number of vessels and container as world demand is increasing day by day.
2. Introduction of Africa and South American services and intermodal connection there.
3. Increase market share in Asian region by direct business.
4. Introduction of feeder service in south Asia and investment in terminal business.
5. More investment in port and terminal business.

D. THREATS OF OOCL

1. World recession which may be incurred huge loss which will impact to the share market and shareholders view to divert from their position or sell the share.
2. Due to surcharge or extra payment, customer may divert to other operators.
3. Heavy competition with national and international carrier.
4. Globalization of the industry. May loose domestic’s cargo.
5. Limited Feeder Vessel allotment from hub port to spoke port in Asian market

05.BUSINESS STRATEGY

Business strategy is the key component of developing the organisation as reputed organisation of the world. In addition, it will help to establish the operational guidelines by which company can proceed step by step. This good plan may help to reach the target point for achieving the desired outputs. It will help to make plan, revision, control and implementation of the project. In a study Lasserre ( 2007) argued that a company business strategy is a set of fundamental choices which defines its long-term objectives, its value proposition to the market, how it intends to build and sustain a competitive business system and how it organises itself. He added that a business strategy will generally cover the followings for getting the maximum outcomes:-

1. Ambition. This will help to set a long-term objectives of the company by which it is possible to create a target especially increasing the size of the organization economically, nationally and internationally.
2. Positioning. It will add the value proposition to customer. Branding the product and service, customer segmentation, preference of customer choices will set a standard of the company and good position on the market.
3. Investment. Business strategy will help to create the environment of investment for going very near of the customer. Also create a system that is able to deliver value to customers competitively.
4. Organization. The profound beliefs of the organization will add value to the employee and long-term working facilities will develop a good structure of human resources management. From human resources to the production, everywhere will be a process and will maneuver the organization in a system.

The business strategy of an organisation may be different in different location or region. The company business strategy may be FDI (Foreign Direct Investment), M&A (Merger and acquisition), Diversification, CSR (Corporate Social Responsibility) or Global Strategy or any corporate strategies that will dominate or indicate how the company will bring competitive advantages to do business.

06.DIVERSIFICATION STRATEGY OF OOCL

a)Diversification

Diversification (Johnson et all, 2005) is a strategy that takes the organisation into both new markets and products or services and be undertaken for a variety of reasons, value creating than others. It may gain the economies of scope by organisations existing facilities also corporate managerial capabilities. Keeping the product is the main challenge of diversification. Instead of increasing growth, it sometimes is a burden for the organisation. The growth of the core business of the organisation may create the financial or distribution channel strength to expand the business in related or unrelated function. Sometimes managers or employee motivates the owners to engage in new business. In addition, the good brand value may attract to diversify the product or introduce new product by which company can give additional customer service. Furthermore, offer from government to do business in a new area or product for protecting the national interest towards a strong position of the company also financial stability in a country.

In a research of diversification , Reed and Luffman ( 1986) argued that basic strategic aims can only be decided after deliberate concentration on the company’s present limitation and future needs which helps to survive, growth , use of resources or adapting to customer then diversification is one alternative in several option available to the company. They also added that analysis of market; material supplies, technological development and production process are required before moving to the decision of diversification. Where the opportunity is available but risk to develop, organisation may not diversify from their core business. The assessment to expand the business in various ways can help to take a decision in what way they will look forward towards existing or new customer but offering the qualitative product or service depends on the customer’s desire and availability of channel by which they can promote the product or service. Otherwise, risk will be increased and core business may be hampered by the new one.

Grant (2008) argued that diversification strategy or decisions by the company involves for two issues: attraction of the industry and output by competitive advantages. The economics of scope can be tangibles or intangible resources of the company even organisational capabilities can also be transferred within the diversified company. OOCL had competitive advantages by its diversified products like information systems and terminal business. The group business expanded business in related and unrelated industry for getting the logistics support for its core business ocean shipping. He prescribed that diversification motivates the organisation for growing, reducing risk and making profit to create inconsistency of shareholder view.

OOCL diversified in both concentric and conglomerate to develop their organisation economically also creating brand value. But they highly focused on concentric diversification because shipping is the derived demand and highly globalized business where customer needs all kind of logistics support. Providing the logistics support they made strong information systems from the origin of transport to the final destination which one is the full version of logistics.

The OOIL group diversified in container business by creating the OOCL logistics which helps to add value in their core business ocean shipping. In addition, they involved in port terminal business in Kaoshiung (China) and Long Beach (North America) which form an integral part of international containerised transport business ( OOIL,2010a). The cargo smart is the innovative software of OOCL by which they can keep relation with their clients in 24 hours. Preliminary it is developed for their own organisations but now using by most of the logistics company of the world. It ( CargoSmart,2010) is a Software as a Service (SaaS) global shipping and logistics solutions provider that enables companies to lower transportation management costs, streamline operations, and reduce the risk of late shipments.

For getting the domestics cargo, they established OOCL china domestics limited for getting the domestics cargo which also add value in their business. Due to heavy industrialization in China and having competition with national and international shipping company, OOCL diversified in their product to create a good marketing approach to the local trader. Kaoshiung port terminal is supporting them by giving logistics centre facilities to the shipper and consignee in China. Furthermore, road and rail transportation also help to attract the customer as it is the multimodal facilities for transporting the cargo at carrier’s risk. Enhance, they structured intermodal service in China, Europe and North America

In conglomerate diversification, they established property business in two countries ( China and USA) as OODL which helps to increase the shareholder value and future of the company for any crisis or recovery of their core business.

b) Vertical Integration in OOCL

There is a vertical integration in OOCL diversification as they set a list of product and service in front of their clients. The core business of OOCL is ocean shipping that means selling the vessel space to the customer and providing the facilities of instrument container for caring the cargo. Along with this business they integrated the services by backward and forward integration. The backward facilities are the information facilities by which customer can log on from any place of the world. In addition, Logistics Company like OOCL logistics, intermodal systems also added in backward integration. The forward facilities are port and terminal business which added value to attract the customer for clearing the cargo easily and economically.

C) Performance and Outcomes.

Diversification and performance are correlated in their potential activities but depends on the acceptance of the customer. Grant (2008) believes that diversification has the potential to create value for shareholders where it exploits economics of scope and where transaction costs in the market for resources make it inefficient to exploit these economics of scope through market contracts. The shipping market depends on its cycles from the ship building to scrapping and mid times using facilities. Moreover, it’s perishable service where customization is very important to use its all cycles. As a container service main line operator, it is very difficult to run the business by only its vessel performance but also need connecting facilities to keep the customer. Diversification in OOCl helps to create logistics products or service like Cargo Smart, Intermodal, Port & Terminal and catalyst their core business ocean shipping. The conglomerate diversification of OOCL in property business helped to survive in recession. Due ( Reuters,2010) to global economic downturn and company huge loss in this downturn , OOIL group has sold $2.2 billion in Chinese property to raise cash and focus on its core shipping business.

07. CRITICAL ANALYSIS

The diversification strategy of OOCL is partially failure. Due to economic downturn, group is unable to sustain and sold their unrelated property business OODL. It will be impacted to their core business because shareholder will not be influenced to keep their share. In addition, they had opportunity for developing their business in port terminals but sold two terminals out of four. Port terminals are big access of a shipping company. However, their present terminal is using by their own and grand alliance vessels.

The best option for container shipping in strategic management may be in global strategy because this is the highly globalised industry. They can choose the strategy for increasing their services in all over the world. Some companies are very successful in M&A like MAERSK. They merged with Sealand firstly and finally acquired P&O Nedlloyd which one is the great and highly capitalized acquisition in shipping industry. OOCL has great opportunity to merge with some African or South American container line to diversify their business in these regions. It will bring more customers. In addition, their core competence of HR policy indicated that CSR may be the best strategy to develop the business. The Grand Alliance ( Hapag-lloyd,2009) formed in 1998 is the leading integrated consortium in global container shipping by the leading main line operator in container shipping Hapag-Lloyd (Germany), MISC Berhad (Malaysia), NYK (Japan) and OOCL (Hong Kong). Jointly they are introducing shipping routes and new services day by day to extend the container shipping.

08.CONCLUSION

Lasserre (2007) stated that managers, politicians, journalists and academics are commonly using the concept of globalization along with global industries, competition, or corporation or strategies to globalize or die. Container shipping industry is highly globalised as it is the derived demand of world trade. Moreover, it has to fight with same line industry like dry bulk or tanker shipping. The business rivalry among the main line container operators is very high. In addition, world alliance by some companies that making groups and start consolidated business is the new dimension to minimize the loss or maximizing the profit. Strategic alliance between two or more firms like the grand alliance of OOCL with other operators brought competitive advantages in business. OOCL is the family business organisation and featured the core competency of human resources. SWOT analysis of the organisation and diversification strategy may show the ways to face the global economic downturn and be more strategic in their business.