A

DOCUMENTORY REPORT
ON

PESTEL ANALYSIS
AND
PORTER’S FIVE FORCES MODEL
ON
Indian Shipping Industry

Submitted to
Mr. JIGNESH DARJI

INDUKAKA IPCOWALA INSTITUTE OF MANAGEMENT (I2IM)

M.B.A PROGRAMME
Constituent of Charotar University of Science and Technology
(CHARUSAT)

Presented by
Vaibhav S. Shah
M.B.A Semester – III
ROLL. NO. 09MBA47
 SEPTEMBER 2010
INDIAN SHIPPING INDUSTRY
Introduction:

There are many factors which directly or indirectly affect the present day
businesses like government policies, regulations, laws, human rights,
competition, technology, international organizations, world trade bodies, child
labour, minimum wage, pollution, accidents, risks, violence, security, labour,
supplies etc. Therefore it becomes important for every business to determine
these various factors and plan their strategies accordingly to survive against all
such odds. But practically it is virtually impossible to consider all such individual
factors and therefore specific models exists like PESTEL and Porter five forces
which are applied available to determine the external and internal environments
factors affecting the shipping industry in India, the same are applied here. Overall
shipping industry in India is very large in size and volume, therefore “Container
Line” business group has been taken for discussion under this study. Container
line business involves hiring, transportation, repairs and movement of containers
by exporters, trader or agents for transportation of goods to any foreign
destination against agreed freight rates. The reason for choosing this industry as
part of study is due to enormous support being given by government of India to
promote foreign trade for the economic development.

PESTEL Analysis

⇒ Political Factors:

Shipping industry in India is administered by central government through

“Ministry of Shipping” with the sole responsibility to formulate policies,
programme and their implementation. Each port is governed under Indian Ports
Act’ 1980 and Major Port Trust Act’ 1963 and administered individually by board
of trustees under direct orders from central government. Political factors are
important here due to immense involvement of government in this industry.

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  Appointment of Custom House Agents:

“Customs House Agent (CHA) is a person who is licensed to act as an

agent for transaction of any business relating to the entry or departure of
conveyances or the import or export of goods at any Customs station”. These
agents are governed by “Customs House Agents Licensing Regulations, 1984”
which involve responsibilities like filing bills of entry, shipping bills, submitting
documents, helping in examination of goods, payment of duty on behalf of
principal, storage and movement of goods. They act as an intermediary between
importer, exporter, clearing agent and custom house due to high involvement and
technical nature of work involved in connection with clearance of cargo. These
agents are appointed after clearing minimum laid criteria’s like minimum
qualification as graduation, practical working experience in customs for 3 years,
holder of pass in Form G as employee of company, reliability of applicant,
financial soundness and completion of oral and written examination with
maximum 3 attempts.

This kind of agents positively affects the Indian shipping sector, because it
prevents the fraud and illegal entry and controls the activities of shipping
business in a particular manner.

 Infrastructure Development:

Maritime Transport is a critical infrastructure for the social and economic

development of a country. It influences the pace, structure and pattern of
development. 90% of India foreign trade is carried out by sea, in contrast its
existing port infrastructure is insufficient to handle trade effectively. In recent
years, government has started promoting investments into infrastructure projects
based on PPP model with allowance of up to 100% FDI and in return provides
incentives of up to 100% tax exemption for maximum 10 years. As a result
significant investments have been made by foreign players like Maersk, P&O
Ports, Dubai Ports International and PSA Singapore in port development and
operation activities.

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 This kind of activities encourages new investors to invest in shipping while
it also gives the benefit to the existing market players by loans and other facilities,
and helps in development of sites, this factor is positively affect the industry.

 Anti Sea Piracy:

Government is actively involved in curbing of sea piracy in Gulf of Aden off

Somalia coast. Sea piracy has been a big problem in recent time for this industry
specially trade and transit between India and counties like Sudan, Saudi Arabia,
Djibouti, Egypt and Ethiopia. To protect vessels and crew from such pirate
attacks, India has deployed its naval warship in Gulf of Aden since 2008 under
informal Contact Group on Piracy off the Coast of Somalia (CGPCS), which is a
broad based policy oriented group comprising 22 countries for securing Somalia
coast from pirates. Around 59 Indian vessels are hijacked since 2009 till date but
none of the seafarers or vessels have been held hostage due to proactive and
prompt measures by government.

This policy negatively affects the industry, because due to policy of

government businesses in sea is not safe at Somalia coast, by which the
shipping business is suffers a lot, because nobody wants do their business in
such a dangerous condition.

 Safeguarding Domestic Market:

With an action of anti dumping and anti subsidy measures in line with
WTO agreement, government seek to provide necessary relief and protection to
domestic companies against dumping of goods and articles at cheaper rates by
exporting companies of foreign countries. India has been a victim since long
against such unfair practices in items like import of chemicals, petrochemicals,
pharmaceuticals, textile, steel and other consumer products which were dumped
at cheaper rates than offered by Indian companies. Under these anti dumping
measures government charges an additional duty on such cheap imported
products making it equivalent to price offered by domestic market.

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 This factor is negatively affects the shipping business, Because the anti
dumping and high duty will discourage the foreign player to deal in Indian market
and by this the Indian shipping market suffers a lot because of less import and
less opportunities of business in such a condition.

 Promoting Exports:

To overcome shortcomings on account of multiple controls and

clearances; absence of world-class infrastructure, unstable fiscal regime and with
a view to attract larger foreign investments in India, the Special Economic Zones
(SEZs) Policy was announced in April 2000. This policy intends to make SEZs an
engine for economic growth, employment opportunities, attract foreign direct
investment, infrastructure development with attractive incentives like exemption
from central and state taxes, 100% income tax exemption for 5 years, duty free
imports, exemption from custom and excise duties etc. As a result there are
presently 105 SEZ units operational in India with continuous growth rate of more
than 50% annually. Even during the period of recession when global markets
were struggling Indian SEZs were booming with growth rate of 93% and 50% in
fiscal year 2007-2008 and 2008-2009 respectively.

This factor is positively affects the Indian Shipping Business, as the tax
saving and other benefits in SEZ is more, the foreign players are also interested
to invest in Indian Shipping Industry, which will results into the development of
Indian shipping industry. Other thing is that 100% tax benefit and other duty free
schemes encourage the domestic players to invest more and more and export as
much as possible, which will result into high growth of industry and upliftment of
sector.

Overall, from the above factors, two factors are negatively affects the
shipping industry and two are positively. But, overall all the present and upcoming
governments are interested in development of shipping industry. So, the political
factors are positively affects the shipping industry.

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 ⇒ Economic Factors:

Economic factors are as important as political factors which concern not

only this industry but every industry in each and every corner of the world.
Change in economic conditions at domestic or at international level largely affects
the functioning of every industry; following are some of the economic factors
which may affect shipping industry.

Exchange Rates are required for determining custom and excise duties,
valuation of import and export goods, payment of duties etc. These rates are not
uniform and fluctuate daily in line with demand-supply factors prevailing in
international markets. With respect to shipping industry, government of India
informs public involved in shipping trade about uniform monthly exchange rates,
through monthly notification. This ensures that dealing and communication
between trade bodies and government agencies, in respect of duties and value of
goods is uniformed across all ports and across all custom houses throughout
India, instead of different rates and different value each day.

 Rationalization Measures:

Government is promoting trade of medical equipments, construction

machineries, renewable sources of energy, bio degradable products, solar
energy, export of species, tea/ coffee plantation and agricultural machinery etc
with incentives like minimal or zero custom duty. In contrast government
demotes import of products like petrol, diesel, precious metals which add no
value to the economy as a whole. These rationalization measures are untaken to
improve infrastructure, quality of life of people, better facilities and environment
friendly products.

This factor is positively affects the shipping industries, as encouragement

of export, agricultural improvements etc will increase the export and increase the
profitability of Indian shipping industry.

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  Push ‘n’ Pull Factors:

Due to global recession since last couple of years liquidity of countries

around the world has affected badly and as a result many governments have
increased the rates on fixed and saving deposits to pull out money from its
people to fund the deficit. This step was successful to some extent which was
further boosted by relaxation in income tax slabs. For i.e. individual in India
earning 5 lacs (0.5 million) or more was paying 30% tax under previous rules
which is now decreased to 20% under “Union Budget 2010-11”. This means
saving of Rs 50,000 by way of tax annually which has indirectly increased the
buying power of that individual. Tax rebates are also introduced if the investment
is made in national health care, medical and infrastructure projects. These new
procedures and relaxations have provided relief to around 60% of taxpayers by
way of savings in taxes.

This factor is also positively affects the shipping industry indirectly, as the
circulation of money getting high, the demographic pattern of people will also
change like income, purchasing power etc. which will increase the business of
shipping by more movement of goods and services for meet the high demands.

 Inflation:

Rate of inflation reflects changes in demand and supply conditions in

economy. Inflation management therefore involves controlling demand and
supply factors by various monetary and fiscal measures respectively. Before
global recession wholesale price index (WPI) inflation was high due to increase in
commodity and fuel prices, with subsequently decreased due to meltdown in
global economy which has resulted in sharp decline of commodity prices. During
the period 2008-09 inflation rate in India was 10.20% which has reached to
1.63% in 2009-10 due to above factors. As regards food inflation, the continuous
increase in inflation rate from start of 2008-09 to 2009-10 was majorly due to
unfavorable monsoon in India which was worst since 1972. Food inflation has
reached double digits because of shortage in supply of wheat, rice, pulses, sugar,
onions and potatoes.

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 Government initiated several anti-inflationary measures like exempting
duties on import of rice, wheat, pulses, edible oils to bring more imports to
country and also allowing distribution of rice and wheat to consumers through
public distribution centers (PDS). Futures trading, exports have also been
suspended for rice, wheat and onions to control increasing prices. However
inflation volatility in India was much better and stagnant compared to other
countries of world.

Inflation rate negatively affect the Indian Shipping industry, because high
rate of inflation will resulted into high prices and high rate of transfer of goods will
decrease the business of shipping.

Overall, economic factors are positively affects the shipping industry.

Except inflation all factors are positively affects the shipping industry and growth
rate is also high.

⇒ Socio-Cultural Factors:

Quick Facts:
Indian civilization can be traced back to 3400 BC during the development
of Indus Valley Civilization. India lies to the north of the equator between 6°44'
and 35°30' north latitude and 68°7' and 97°25' east longitude. India's coast is
7,517 kilometers long which consists of 43% sandy beaches, 11% rocky coast
including cliffs, and 46% mudflats or marshy coast India has a GDP of over USD
1.367 trillion, the 11th largest in the world. It is the 4th largest in the world in
terms of purchasing power parity. Its per capita income is USD 1124, 139th in the
world. Population in India is second highest in the world. As of 2010, India’s
population is estimated to be 1.18 billion. India ranks 139th globally, under
medium human development category according to Human Development Index
(HDI). Due to significant changes in economic reforms undertaken during the
industrial revolution in 1991, India has transformed itself to one of the fastest
growing economies in world. India is also a strong member of Commonwealth of
Nations, SAARC, and WTO. India’s strong 55,000 military personnel’s are
serving in 35 UN peacekeeping operations across 4 continents.

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  Demographics:

India has more arable land than any other country except United States,
and largest water covered area after Canada and United States. Indian life
revolves mostly around agriculture and allied activities in small villages, where
the overwhelming majority of Indians live. As per the 2001 census, 72.2% of the
population lives in about 638,000 villages and the remaining 27.8% lives in more
than 5,100 towns and over 380 urban areas. In languages Hindi is used by over
80% of population in India followed by Muslim (13.4%), Christian (2.4%) and
Sikhs (1.3%). Muslim population in India is third largest in world after Indonesia
and Pakistan. 57% of population in India is between age group 15-59 years while
around 35% of population is below 15 years. Literacy rate in India is 64.8%
overall distributed between urban (79.9%) and rural areas (58.7%). This factor is
positively affects the shipping industry, as difference in location, demand people
will demand different things and import of it will increase the shipping business.

 Cultural Trends:

Trends are a manifestation of new enablers unlocking existing human

needs which are constantly changing with time. Cultural trend reflects in many
tangible aspects ranging from architecture to attire to food to culture which are
deeply embedded in the rich historical and geographical elements of the country.
In the past two decades, India has seen plethora of change, more so, as an after
effect of globalization. A nation of thinkers has become a nation of doers, eco
sensitivity is on the rise, and all this has translated into a new language of
patriotism, and speaks of a redefined culture. This cultural shift has definite
impacts on the Indian work scenario. Start-ups today have fresh innovative
concepts and exciting working models which highlights the key socio-cultural
trends in India. Businesses are increasingly catering to rational, practical and
current cultural needs and are not based only on traditional models and offerings.
Indian society is defined by relatively strict social hierarchy because of high
degree of syncretism and cultural pluralism. Marriage is considered to be a
thought for life and therefore divorce rate is extremely low in India.

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  Recent Trends in 2010:

Government has started its long awaited prosperous plan to provide

unique identification number to every citizen which would be used primarily as the
basis for efficient delivery of welfare services. It would also act as a tool for
effective monitoring of various programs and schemes of the Government. This
program of unique identification will strengthen transparency and accountability.
Plans are also underway to improve literacy rate of 60mn females among 70mn
illiterate adults through introduction of “Saakshar Bharat” (Educate India)
scheme. Enhancing post-matric scholarships schemes for scheduled caste
students. Creation of 0.1mn skilled manpower under National Skill Development
Corporation scheme. National Social Security Fund for unorganized sector
workers to be set up with an initial allocation of Rs. 10,000mn. This fund will
support schemes for weavers, toddy tappers, rickshaw pullers, bidi workers etc.
Various such measures are being taken by government to improve the education
level in rural areas, improving the health of rural people and those living below
poverty line, developing rural infrastructure and rural housing.

Overall, socio cultural factors positively affect the industry. Because

people are more relay on shipping and this will increases the growth.

⇒ Technological Factors:

Technologies significantly affect human’s ability to control and adapt to

their natural environments. Technological development like printing press,
telephones and internet to name a few have lessened physical barriers to
communication and allowed humans to interact freely on a global scale.
However, not all technology innovations are good for society like development of
nuclear and other weapons which only create destruction. In recent times, more
encouragement is being given to new technologies which are environment
friendly. Shipping industry is majorly dependant on technology which fastens
movement of cargo and ships, processing of data, increases output, better
delivery and communication, savings in fuel and controlling costs. We will see
some of the benefits of technology which is revolutionizing shipping industry.

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  Faster Data Processing:

Traditional methods of manual data entry using typewriters for preparation

of shipping documents, bills of entry, survey reports, load/ discharge list has been
taken over by computers and internet. Now customers are preparing shipping
instructions in their own office using computers and directly sending them to
shipping lines for preparation of bills of lading using internet. Customers are also
receiving web invoices and are making payments to shipping lines through online
banking. This technology improvement has changed the way people were
traditionally working with more ease, flexibility and efficiently. Customers can also
track estimated arrival/ departure of their cargo to/ from terminal on shipping lines
website because of synchronization between company’s system and internet.
Shipping lines and CHA’s have also benefited with this technological innovation,
they are now able to communicate with customs, government offices easily
through mails and can send official shipping documents using encrypted data
transfer channel. These e-business solutions has benefited organizations by way
of low costs, reduction in errors, short processing times, reusable data, real time
information, less rekeying, saving of phone, fax and courier costs, secure
solutions, seamless flow etc.

These e-solutions were further boosted in shipping industry with

introduction of INTTRA (third party e-business platform) which has made possible
for customers to send same data to multiple operators rather than sending each
data individually to every operator. Almost every shipping communication
between customer and shipping lines are now being done through this system.
Another breakthrough in this field was implementation of Customs EDI system
(Electronic Data Interchange), which connected Indian customs with players in
international trade electronically. The main purpose for its implementation was to
respond quickly to the needs of trade, reducing interaction of trade with
government agencies, uniformity of assessment and valuation across all custom
stations, providing quick and correct information and statistics to policy makers. It
has reduced the paper work, operational time, costs drastically with increased
data accuracy, security and management.

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  Ship Technology:

Changes in ship building and designing technology have also made

significant changes in order to decrease carbon emissions, reducing erosions to
save marine ecosystem and to increase fuel efficiency. One innovation which is
underway in field of recirculation of exhaust gases in ships, which will reduce
pollution of Nitrogen Oxide in atmosphere. This exhaust gas recirculation (EGR)
system from MAN Diesel can reduce nitrogen oxide emissions by 50% today and
80% in near future. The system works by directing part of a vessel’s exhaust gas
back into the engine scavenge air, reducing the oxygen content in the
combustion chamber. The resulting lower combustion temperature in turn
reduces nitrogen oxide formation. Testing of this prototype system will be done in
of the container vessel in current year (2010).

Another technology is developed by SISTEMAR, in design of propeller which is

expected to increase efficiency of ship by 5-8%. this contracted and loaded tip
(CLT) propeller is an unconventional propeller which will reduce tip vortex, reduce
cavitations, improve manoeuvring and will reduce emission by 5-8% compared to
conventional propellers. After the initial testing it has been found that new
propeller has significantly reduced vibrations onboard the ship, increased the
efficiency and the propeller is causing low induced pressure pulses.

Overall, technological factors positively affect the shipping industry,

because development in technology will useful in reducing the time of process
and useful in timely decisions. New technological advancement will increase the
business by better service quality and fast data processing.

⇒ Environment Factors:

Over the decades, the depletion of ozone layer and its preservation had
been high a priority for environmentalists and developed nations. Campaigns and
initiatives are being taken globally to reduce these carbon emission levels
through technological innovations and mass education. Following are some of the
initiatives taken to control accelerating environment degradation.

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 The UN’s Intergovernmental Panel on Climate Change (IPCC) believes
that global warming is largely due to increase in CO2 levels and other
greenhouse gasses which are caused by human activity all over the world.
Perhaps the most dramatic evidence of this change is that about half of the Arctic
ice has disappeared over the last 20 years. From a CO2 emissions perspective,
shipping is one of the most climate-friendly ways to transport goods with very less
amount of CO2 emissions. It is essential to make sure that ships emit low carbon
footprint, not only to help climate but also to remain competitive.

Globalization requires the transportation of goods between countries. A ship

emits less CO2 per tone of goods transported than transportation by train, lorry or
plane. Greater the proportion of goods transported by containership, the better it
is for the climate. Therefore it is important to improve the efficiency of ships
through better designs, hulls, propellers and better utilization of waste head.

 Marine Protection Programmes:

United Nations Regional Seas Programme launched in 1974 to address

the issues on degradation of world’s ocean and coastal areas by engaging
neighboring countries in comprehensive actions to protect their shared marine
environment. United Nations oversee the implementation of programmes and
enact regional action plans on marine emergencies, information management
and pollution monitoring. Nearly 20% of sea pollution comes from dumping of oil
and other wastes from ships, from accidental spills and offshore oil drilling.
Marine pollution can kill birds, marine mammals and fish, particularly near
coastline. India is a member country of this programme and it has its own
indigenous National Oil Spill Disaster Contingency Plan (1996) which looks after
protection of marine environment around Indian coast with help of coast guard
and other non government agencies. Another non profit organization “The
International Tanker Owners Pollution Federation Limited” promotes effective
response to marine spills of oil, chemicals and other hazards material by way of
technical advice and information. It was established in 1968, in wake of Torrey
Canyon incident, to administer the voluntary compensation agreement to those
affected by oil spills.

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 This policy is adversely affects the shipping industry, because of heavy
and strict rules for transporting a hazardous chemicals and using of fuel in ships.

 Ship Recycling:

After the expiry of operational life of ship, it needs to be recycled or

dismantled whereby its parts and equipments can be reused for i.e. steel, copper
cables and aluminum can be recycled to produce new steel, copper and
aluminium respectively. Although this principle of ship recycling may sound good
but the working practices and environmental standards are much different than
expected. The Hong Kong International Convention for the Safe and
Environmentally Sound Recycling of Ships, 2009, was adopted in May 2009 to
ensure that ships, when being recycled do not pose any unnecessary risk to
human health and safety of the environment. International Maritime
Organization’s new convention covers the design, construction, operation and
preparation of ships so as to facilitate safe and environmentally sound recycling,
without compromising the safety and operational efficiency of ships.

“Alang Ship Breaking Yard” in western India is the one of the biggest
centre for ship breaking in the world, with around 50% of ships salvaged globally
is recycled here. This yard has been in controversy since recent past due to
workers living condition and adverse impact on environment. Government has
signed a memorandum of understanding (MoU) with Japan based on (PPP)
model to upgrade this shipyard to international level complied by standards of
International Maritime Organization.

⇒ Legal Factors:

Law is a system of rules and regulations usually enforced through a set of

institutions, government or international organizations. Legal factors are related
to the legal environment in which firms operate which elaborate rights and
responsibilities in variety of ways. International trade and in particular shipping
industry functioning is too influenced with changes in these legal factors. We will
look at some of the main acts on which shipping industry is dependant
internationally as well as domestically.
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  The Dock Workers (Regulation of Employment) Act’ 1948:

Dock worker means a person employed or to be employed in any port in

connection with the loading, unloading, movement or storage of cargo from ship
or vessel. This act regulates the recruitment and management of dock workers in
Indian ports either temporary or permanently including their entry and removal,
regulating terms and conditions of employment, deciding rates of remuneration
and hours of work, minimum wage in respect of non availability of work and
prohibiting, restricting or controlling the employment of dock workers not covered
under this scheme.

Customs Act’ 1962 provide judicial and administrative powers for efficient
working of shipping industry. The act deals with appointment and functioning of
custom ports, airports and custom officers, determination of goods to be
imported/ exported, prohibition on trade on specific commodities, power of
levying and exempting goods from duties, assessments, claims, warehousing
and clearance of cargo, security, confiscation, settlement of cases etc. The list of
duties is exhaustive and not just limited to these activities. It almost covers each
and every aspect of rules and regulations required for international trade of goods
and services in India.

This factor is also negatively affects the business of shipping industry,

because as per the rules and regulations of this policy, one cannot force the
employee to work more than prescribed time, and the risky work Is also not
getting done, by all this factors the performance and the work of shipping industry
is suffer, because work cannot complete on time and whole industry get suffers.

 The Essential Commodities Act’ 1955:

This act gives powers to government to regulate or prohibit production,

supply and distribution of essential commodities for commerce and trade in India.
Essential commodity within this act pertains to sale and purchase of goods and
services like crude and edible oils, petroleum products, iron and steel, paper,
cotton, jute, coal, cattle fodder, food crops sugar etc. Government through judicial

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powers can control the purchase/ sale price of commodity, prohibit its sale or can
order the person holding the stock of essential commodities to sale in part or in
full which may otherwise result in horse-trading or inflation in country. This
scenario was seen in India in last quarter of 2009-2010, where government has
stopped the export of rice, wheat, pulses and sugar and has started importing
more from foreign countries to fight against the rising prices in domestic market
which was leading to inflation.

This factor is positively affects the shipping industry, because as the

government prevents production, the suppliers will import more goods from the
foreign to meet the high demands of products. As the import increase, it will
results into the beneficial for shipping industry in a way of transferring or
movement of goods from one place to another.

 Foreign Exchange Management Act’ 1999:

This is one of the important acts which have revolutionized international

trade in and with India due to liberalized policies in foreign exchange
management and regulation. The main objective behind this act was to
consolidate the law relating to foreign exchange with objective of facilitating
external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India. The act is applicable to all
branches, offices and agencies in and outside India owned or controlled by a
person who is resident of India. Reserve Bank of India (RBI) is the sole authority
to approve or authorize any foreign exchange transactions coming in or out of
India. Much of the provisions of this act affect shipping industry in one way or the
other due to its close inter relation with foreign exchange transactions. Indian
foreign exchange reserves were increased by 56% in 2008 compared to 2007
while it was declined by 19% in 2009 compared to 2008 (partly due to global
recession).

As stated above this factor is positively affects the Indian shipping industry
in many ways. As this factor is helpful in earning foreign funds, and this is

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possible by transaction between two countries and most of the goods are moved
by the sea way. So, the business and profit both are increased.

 The Right to Information Act’ 2005:

This act has given secure access of information under the control of public
authorities, to citizens of India. The act has brought transparency and
accountability in working practices of public enterprises with continuous and
gradual decrease in corruption cases. Public authorities are required under the
act to reply immediately or within 30 days of receiving request from any citizen
which has forced them to computerizing all their records for fast and easy
dissemination. The act also empowers citizens to inspect the requested
information, take certified samples and copies through print or electronic mode.
Certain categories of information which are against the sovereignty or integrity of
India has been kept out of purview of this act. In the first year of the
implementation of this act government received 42,876 applications of requests
for information.

This factor affects in a both way. As the information is available there is a

less chance of corruption and illegal practices in business. But by other side it
raises the competitors and the chance of loss due to secret information leak and
governments policies.

Overall all the factors more or less affects the shipping industry in both
positive and negative manner. But there is a more chance of profit because of the
positive response and favorable policies of government of India. As the Indian
government trying to develop shipping ports and interested in development of
shipping industry the political factors are positive. But as per environment
concerns the shipping industry is in controversy. Technological and legal factors
are also favorable because of liberal policies of government and technological
advancement.

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 Analysis of Porter’s Five Forces for Indian Shipping
Industry

Porter's five forces is a framework for analysis of industry and

development of business strategy, it also determines the competitive intensity
and attractiveness of a market. Attractiveness is referred to overall profitability of
industry while unattractiveness drives down profitability. This model implies that
profitability or return should be constant across firms and industries; however
studies have affirmed that different industries can have different levels of
profitability due to their varied structure. The model can be used by organizations
to develop edge over rivals. Conventionally, this tool is used to identify whether
new products, services or businesses have the potential to be profitable?
Following is the graphical representation of Porter’s five force analysis which we
will discuss here briefly, in relation to Indian shipping industry.

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 ATTRACTIVENESS FOR SHIPPING INDUSTRIES
(Analysis of Container Line Business)
FIVE FORCES ATTRACTIVENESS
1. Threat of New Entrant is High Industry attractiveness is High.

2. Threat from Substitute is High Industry attractiveness is High.

3. Bargaining Power of Suppliers is Low Industry attractiveness is Low.

4. Bargaining Power of the Buyers is High Industry attractiveness is High.

5. Rivalry Among existing Players is Low Industry attractiveness is High.

INTERPRETATION

Here, the government is liberal towards the licensing and development of

shipping business. So, the threat of new entrance is high, but as the profit margin
is high, the attractiveness is also high. Many competitors are available in the
market and they are provides perfect substitution in terms of services, freight
rates etc, but the resources are also easily available. So, that attractiveness is
also high, suppliers are very few but the available facility is very less with him and
cost is high, which makes suppliers in weak and buyers in strong position. So, in
this term the industry attractiveness is low. As competitors high, and there is
perfect competition situation. The bargaining power of buyer is high, but
potentiality of business is high and many buyers are there in the market. This will
increase the attractiveness. Existing players are many, but constant technological
advancement and updated services and facilities will increase the attractiveness.

⇒ Threat of New Entry

Every person would love to do business in India especially in shipping

industry due to large profits involved. However this would seem easy but
practically it is lot more difficult and virtually impossible to establish in container
line business. The problem pertains to large capital investments in form of vessel
and container procurements and risk of operating vessels. Therefore there are
only two native Indian companies which are involved in this business, others all

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are foreign players or in other words are multinational companies having their
business arm extended in India. Even if we take the examples of biggest
companies like Maersk and APL we will see that it had taken more than 100
years for these companies to establish themselves today at this top level. While
there can be threat from existing companies to expand into new sectors which
would lessen the share of company operating in that region. For i.e. Maersk is
generally operating in every part of the world, in certain regions it may be the only
player operating in that case its profit margins from those operations would be
enormous. However this profit can be severely affected if APL or MSC introduce
their service in those regions, or the situation can be vice versa. If there are any
new potential companies who would intend to jump into this sector with huge
capital than other factors like licensing, government rules, regulations, policies
are all secondary.
Factors Threat of New Entrance Attractiveness
High Moderat Low
e
Capital Requirement  High

Profit Margin  Moderate

Opportunity of Expansion in new  Moderate

sector
Economies of Scale  High

Switching Cost  High

Government Restriction  High

Overall Threat from the new entry barriers High

Attractiveness of Shipping Industry High

From the above table I conclude that as the capital requirement is high but
the profit margin is also high, so the attraction is high. Opportunity of expansion in
new sector is moderate but the profit in present sector is high, so, attractiveness
is high. Economies of scale is less because all market players are operating at
their highest level, switching cost for buyer is high because of less experience of

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different players will increase the attractiveness. Government restriction is less.
So, the attractiveness is high.
⇒ Threat of Substitution

Substitution factor is foremost important especially when something is

going wrong in organization and competitors are waiting to catch that opportunity
for their benefit. We have discussed above how competitive the market is in India
and the core factors like price and service which affects the buying behavior of
customers. Substitution threat is the result of change in buyer behavior towards
competitor or against company. Substitution may also result because of change
in quality of service, increase in freight rates and increase in transit time. From
view point of switching costs, buyers are not affected at all due to higher number
of suppliers and freight forwarders available in market. While it may affect the
company to certain extent as they have to start new search of customer,
establish strong relations and educate them on company policies and systems.
Switching costs become even more at times of downturn due to decrease in
supply of business from customers. Cost factor is primarily responsible for
substitution while service specification comes secondary.
Factors Threat of Substitution Attractiveness
High Moderat Low
e
Availability of Substitutes  Low
Price, Performance and quality  High
of services of Substitutes
Switching Cost  High
Cost factor  Moderate

Overall threat from Substitution High

Attractiveness of Shipping Industries High

More number of market players are available but they all are dealing in different
prices, performance and quality will increase the attractiveness of shipping
sector. As the switching cost is high, customer stick to their present seller will
increase attractiveness. Cost factor is less important because all players are play
a role of defender in market will moderate the attractiveness.

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 ⇒ Supplier Power

Suppliers barely make any difference to companies involved in shipping

line business in India, especially who are leading players in this business while it
may affect to certain extent to small players who are struggling to establish within
the industry. Many supplies are such which are borne directly by customers but
arranged by shipping lines like fumigation, 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 supplies were not arranged by company.

Literally speaking suppliers of these services hardly make any difference

to shipping line, financially as well as socially. If we consider supply of ship
stores, food stuffs and other supplies in ships, than there are many suppliers of
these supplies in market today while in contrast the demand is much less.
Therefore the price factor remains weak in favor of suppliers here.

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 brunt 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. For i.e. 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 port in Mumbai, from where Maersk mother vessels are operating
across continents. In this case Maersk may have to pay some extra money if
demanded by ship operators. While this is not the case with MSC 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.

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 There are other supplies like stevedoring, loading/ unloading of containers
from vessel, movement of containers to CFS (container freight station) and
vessel towing which are provided by port authorized suppliers and companies
don’t have to arrange separately. Port authority charges fixed amount towards
these handling from shipping lines and shipping lines charges the same from
customers after adding their profit margin.

Factors Barriers and threat from Attractiveness

Suppliers
High Moderate Low
Number of Suppliers  Moderate
Price Factor for Suppliers  High
Availability of Raw material  High
Profit Margin  Low

Switching Cost  Moderate

Operating and Hiring Cost  Low

Overall threat from Suppliers Bargaining Power Low

Attractiveness of Shipping Industry Moderate

Availability of large number of suppliers will increase the attractiveness. As the

price factor rarely affect the industry would increase the attraction. Easily
availability of raw material will increase attractiveness. High switching cost and
moderate margin of profit will decrease the attractiveness. As the operating and
hiring vessel will costs more and due to stiff competition in market will reduce the
attractiveness of suppliers. So, the overall threat from supplier’s bargaining power
is low because of number of suppliers but on the other hand the attractiveness of
Shipping Industry is moderate because of more opportunities of expansion in
other sectors.

⇒ Buyer Power:

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 Buyer is one the strongest factor 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
than trader acts on behalf of manufacturer of goods.

Container line business in India is based on two core factors viz 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. For i.e. almost all shipping lines
have service to Jebel Ali (an important transit hub) from India and customer are
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 than this power is transferred to companies operating in those
regions. Therefore companies like Maersk, APL and MSC strategize their
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. For i.e. 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. Examples 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 section of buyers which may affect container line business are
freight forwarders or clearing agents, with rapid expansion of shipping industry

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and import/ export businesses in India, 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
as they bring big lot of containers from different small exporters which would be
difficult if shipping company approaches those 10 different exporters for business
instead of only one agent.
Factors Threat of Buyers bargaining Attractiveness
High Moderate Low
Number of Customers  High
Price and Quality of Services  Moderate
Switching Costs  High
Buyers information and  High
Awareness
Buyers ability to demand  High
Concessions while Purchasing
Freight Forwarders and Clearing  Low
Agents

Overall threat from customer’s bargaining Power High

Attractiveness of Shipping Industry High

More number of customers will increase the overall attractiveness of the shipping
industry. But the more or less same prices and same quality will moderate the
attractiveness. Switching cost for buyer is low because of more number of market
players is higher the attractiveness. As the perfect competition situation prevail in
market will provide all kind of information easily, so, the seller will know the profile
of buyer and their demand will increase the attractiveness. Buyers ability to
demand Concessions while Purchasing is high because the seller in threaten of
loosing customer will affects the action of seller. But on the other hand high
switching cost for buyer will increase the attractiveness of shipping industry.
⇒ Competitive Rivalry

Rivalry exists in every field be it business, science, space, technology,

education etc; actually speaking it is part and parcel of day to day businesses. It
is sometimes bad because companies have to share hard earned profits with
competitors and sometimes good because it gives opportunities to one company
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to stand in line with another in terms of quality of service, business strategy, job
satisfaction etc. Considering the rivalry in shipping industry in India, will be held
valid due to enormous margins of available profits combined with continuous
growth of around 14% since last couple of years. If we consider the rivalry
between our top of the table players (Maersk, MSC and APL) we will find that all
these players are good in some and bad in some and therefore stiff competition
exists between them. Maersk dominates the market due to its wide area
coverage, better connectivity, best business practices, and cost controlling
measures while it is outcry for many due to its strict and non flexible policies and
highly technological advancement at very base levels which is not digested by
people working in lower educated market. MSC on other hand has balance of
advantages and disadvantages. It has done well in recent times in attracting
business due to its competitive pricing model and better connectivity of services.
In contrast it has failed to control administrative, operational and higher output
costs. It has been seen practically at Kandla port location where Maersk is having
higher outputs compared to MSC but staff recruited to control that output and
time for completing the tasks was almost double compared to Maersk. APL on
other hand has much controlled costs measures and highly technological
advanced processes as in Maersk but it doesn’t have far reaching connectivity
like Maersk and MSC and therefore relies on third party services in certain
regions. Also it has lagged behind in attracting customers due to non availability
of killing marketing strategies.

Factors Threat from Competitors Attractiveness

High Moderat Low
e
Number of Competitors  High
Exit Barriers  High
Buyers switching Costs  Moderate
Cost Leadership  Low
Industry Growth  High

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Competitors Fresh Moves  Low

Overall threat from competitors of industry High

Attractiveness of Shipping Industry High

More numbers of competitors increase the attractiveness on the basis of

assumption that this sector has more profit opportunity. There is a less chance of
exit of barriers will also higher the attractiveness of shipping industry. Moderate
Buyers switching cost will also increase the attractiveness because of less
familiar with new seller will results into conflict or controversy. But as the high
industry growth will attract new players to deal in shipping industry. Cost
leadership in case of major market players will lesser the attractiveness because
the new entrance and minor players will not cope up with very lower cost of
market leaders. Competitors fresh move is very low because most players are
hesitate to deal with the new customers, because they are not well known about
their profile is lower the attractiveness of shipping industry.

Conclusion

Container line business is a flamboyant industry not only in India but in

whole world. Due to rapid economic development since recent past, trade
between India and developed countries has increased significantly and India is
being seen as export making country from its traditional tag of import specific
country. As a result of this development shipping industry is progressing at
average rate of 10% during the last 3 years. It is also essential that government
of India and “Ministry of Shipping” in particular should take more proactive steps
like setting up automated container terminals, developing more dry cargo berths,
liberal regulations in free movement of foreign exchange and international trade,
easing export/ import duties to make this industry work more freely and contribute
even more to economic development of country. Companies at same time should
adapt more technology to make easy and efficient work environment for
customers and employees.

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 References
⇒ Census of India 2001,www.censusindia.gov.in
⇒ Ministry of Shipping, Government of India www.shipping.nic.in
⇒ Marine Environment, www.imo.org
⇒ National Portal of India, http://india.gov.in
⇒ Infrastructure, Government of India, http://infrastructure.gov.in/port.htm
⇒ Indian Ports Association, http://ipa.nic.in
⇒ Special Economic Zones in India, Government of India,
http://sezindia.nic.in
⇒ CLT propeller Design, SISTEMAR,
http://www.sistemar.com/CLTpropellers/desing.html
⇒ Directorate General of Shipping, http://www.dgshipping.com
⇒ Legislative Department, India Code, http://indiacode.nic.in
⇒ Income Tax Department, Government of India,
http://www.incometaxindia.gov.in
⇒ Ministry of Finance, Government of India, http://finmin.nic.in
⇒ Indian Custom EDI System, http://ices.nic.in/Ices/home.aspx
⇒ Reserve Bank of India, http://www.rbi.org.in
⇒ http://www.bignerds.com

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