Overview Of Mitsui OSK Lines Commerce Essay

Introduction to Mitsui OSK lines

Mitsui OSK lines (MOL) are a Japanese transport company which has wide range of business. OSK lines were a shipping company which was formed in 1884 and Mitsui was formed in 1942. During the major consolidation in Japanese shipping markets Mitsui OSK lines was formed in 1964, following the mergers of two companies OSK lines and Mitsui. (Mitsui OSK lines, 2010). After the formation in 1964 they launched specialised car carrier in 1965 and then full container ships in 1968. Later on they also entered the LNG market and also launched the double hull VLCC in 1995. As a strategy to expand their container services covering North America, Asia and Europe MOL joined a global merger know as The New world alliance (TNWA) with American president lines and Hyundai Merchant Marine. (Panama Canal authority, 2009). In one of the biggest mergers in Japan Mitsui OSK lines (2nd largest in Japan) merged with Navix lines (4th largest in Japan) in 1999. After the merger with Navix lines, MOL became one of the biggest maritime carriers in the world (Japanese Times, 1998). The groups headquarters are in Tokyo, Japan. The company has in total 533 subsidiaries and affiliated companies in 66 countries with a consolidated work force of 39,864 employees (Annual report, 2009). Its main areas of operations are shipping and shipping related activities.

Source: Mitsui OSK lines, 2010.

As seen from the above chart MOL has a wide range of ships such as containers, pure car carriers, Bulk carriers, Tankers, LNG carriers, and others. MOL’s core business segments are its bulk ships, container ships. (Mitsui OSK lines, 2010). In addition to ships they are in logistics services such as distribution and inventory control, air cargo transport, construction and engineering, real estate, trading and R &D. (Mitsui OSK lines, 2010). MOL has 861 ships as of 31st March 2009 with a carrying capacity of 59,643 thousand tons. In terms of number of ships and deadweight MOL ranks the world’s largest shipping company in the world ahead of NYK and COSCO (Mitsui OSK lines, 2010).

Source: Mitsui OSK lines, 2010.

It has the largest Dry bulk fleet in the world with fleet size of 356 ships with a combined deadweight of 31026 million tons (Mitsui OSK lines, 2010). MOL is ranked first in terms of operation of LNG ships. Even after the financial crisis, the bunker prices at sky high rates and a strong yen in FY 2008 MOL posted their second highest annual income till date. This was more due to the strong performance in first half of 2008. Their revenue for FY 2008 was 18,994,218 thousand dollars with net income of 1292752 thousand dollars.

Source: Mitsui OSK lines, 2010.

Source: Mitsui OSK lines, 2010.

Innovations and other activities

In 2001 MOL launched its corporate principles to ‘promote and protect our environment by maintaining strict, safe operation and navigation standards’ (Mitsui OSK lines, 2010, p.1). As per their principles they launched the 24hour manned (SOSC) Safety Operation Supporting Centre in the Head Office which monitors all MOL vessels position all around the world. MOL is also heavily involved in research and development. In December 2009 it displayed its concept of new generation vessels. The car carrier which is environment friendly they call it a HBRID car carrier, i.e. it uses renewable energy for ships electricity supply. The current president of MOL is Akimitsu says he want to create an ‘excellent and resilient MOL group that contributes to sustainable worldwide growth’ (Ashida, 2009, p.1)

HYBRID CAR CARRIER

Source: Mitsui OSK lines, 2010.

Theory of SWOT analysis

W = WEAKNESS

S = STRENGTH

T = THREATS

O = OPPORTUNITIY

Source: Author generated

“The central purpose of SWOT analysis is to identify strategies that align, fit or match a company’s resources and capabilities to the demands of the environment in which the company operates” (Hill & Jones, 2001).

The true sense of SWOT analysis lies in its efficient use of rendering the company with its true picture of internal and external threats to the organisation. The predominant usage of SWOT is by bifurcating it into external and internal factors.

Internal factor comprises of strengths and weakness of an organisation and the people who set the organisation standards. External factors are its opportunity and threats that are from its competitors and fellow companies. (Wang, 2008).

True analysis helps the company set its agenda and helps excel to sustain in the competitive market. It is the model that helps it restructure the organisation to be able to sustain the competition. SWOT matrix can be used by managers to create various kinds of growth strategies. In the matrix there are four set of combinations which can be used. (Wang, 2008).

SWOT MATRIX

Opportunities

EXTERNAL FACTORS

WO

SO

ST

WT

Threats

Strengths

Weakness

INTERNAL FACTORS

SOURCE: Wang, 2008

SO: It is a combination of using strength of an organisation to grab the opportunities.

ST: Using the strength of a company and company members to fight threats. Threats can be internal or external

WO: This combination helps fight weakness to open up new opportunities.

WT: Weakness and threats; these strategies are defensive in nature and helps to act in the positive direction to accomplish the set targets of the organisation.

SWOT Analysis

Strengths:

Strong revenue growth: Its core shipping business is its bulk shipping. These are primary responsible for the growth of the company. It contributed to 86% of the revenue for the group. This increase in its major divisions will fuel the company’s growth and will also help it in expanding its market share (Mitsui OSK lines, 2009).

Diversified business portfolio: MOL has a diversified fleet ranging from ship operations to logistics. The logistics division of the fleet supports its shipping division. Due to its diversified fleet it can cope up with short term market fluctuations and also it can influence them. It also helps the group to enter into a market with wider customer base. (Mitsui OSK lines, 2009).

Large fleet size: With respect to number of ships MOL has one of the largest fleet sizes. The group has the largest fleet of ships for Bulk and LNG. With this large fleet size it can service its customers better and also it improves the bargaining power in the market (Mitsui OSK lines, 2009).

Weaknesses:

Geographic concentration: MOL’s main trade area is near the Japan coast and it is mainly catering to the Japanese market. For the FY 2007-2008 95% of its revenue was earned from the Japanese market. Over dependence on Japanese market makes its business risky as it is completely depend upon the economy of that country. It faces a competitive disadvantage over other companies due to its absence from the emerging markets in Asia. (Mitsui OSK lines, 2009).

Economic downturn will affect the company as it is solely dependent upon Japanese markets.

Slow growth and minimum profit margins in container market will affect the company’s net income, due to the presence of container market drivers such as Maersk and MSC.

High debt burden: MOL suffers from substantial Debt for the year ending 31st March 2009. As MOL has such a high debt it will affect on the groups capacity to obtain funds for future working capital, acquisitions etc. which will hamper the growth of the group (Mitsui OSK lines, 2009).

Opportunities

Growing volumes of container market: Due to globalisation container market will keep on growing at high rate. Hence they can enter into new trade routes in emerging markets such as Asia and Middle East (Mitsui OSK lines, 2009).

Growing demand for natural gas transportation: The demand of natural gas will keep on increasing over the years as industrial, commercial and residential consumption will increase. MOL is already into natural gas transportation, they can benefit themselves with the growth in demand (Mitsui OSK lines, 2009).

Well-timed fleet expansion: New regulations in Bulk shipping are coming, which are setting an upper limit on the age of the ships. MOL has got new fleet of carriers and also it can expand its current fleet and make the most of the situation. (Mitsui OSK lines, 2009).

Threats

Volatile oil prices: As MOL operates such a large fleet size fluctuation in the crude oil prices seriously affects the company. As the market is very competitive increased fuel prices burden cannot be passed on to the customer. This affects the companies operating expenses. (Mitsui OSK lines, 2009).

Economic crisis is also a major concern due to major concentration of its trading in Japan.

Competitive industry: There is a price war in between companies such as Maersk, NYK lines, MSC, Hanjin etc. Companies are coming up strategies such as low prices and faster delivery of goods. Hence the company has to make long term sustainability strategies which can help them stay in the market. (Mitsui OSK lines, 2009).

MOL has a large fleet and in-spite of having policies, proper training and adequate precautions accidents are bound to happen. Oil spill accident can affect the company’s image and can wipe out its business (Mitsui OSK lines, 2010).

Global strategy

Global strategy is a strategy which focuses on the world market and considers it to be a single market. This strategy is mainly adopted by companies which can compete on a global basis and their products are mainly standardized and offer services on a worldwide basis (Laudon & Laudon, 2007). Global strategy is adopted mainly because of globalisation and liberalisation of trade all over the world.

Some of the key drivers of globalisation are:

There is a significant amount of reduction of barriers for trade in-between countries.

The markets are liberalised and adoption of free market strategy.

Industrialisation in developing nations such as India, China.

Integration of world markets and cross border transactions have resulted in easy flow of capital.

Technological advances are facilitating cross border trade and investments.

The key participants in the global business are multinational enterprise (MNEs). MNE is a large company which have offices and subsidiary companies all over the world. Normally MNEs have inter-dependent members located all over the world, and all members work for a single system. MNEs normally carry out R&D, manufacturing, procurement and marketing activities in whichever part of the world is economical for their business. Development of Information technology is giving the firms more flexibility to plan their global strategy. (Laudon and Laudon, 2007).

Implementation of global strategy in a MNE is not easy at it seems. There is diversity in behaviour of people within countries. Companies when implementing their global strategies have to modify their strategies depending upon the regional markets. (Baird, 2003) Companies should also take into consideration regional differences, different life styles of people, cultures, and values. (Baird, 2003) In under-developed countries there may be other factors such as relation with government officials, language barriers lack of well trained people (Quickmba, 2007).

Shipping by its nature is a globalised industry. Most of the large shipping companies operate on a global scale, and the above theory of global strategy fits perfectly for shipping lines. In terms of shipping global strategy means development of business through growth, acquisitions, alliances, creation of new capacity or a mix of all these things (Baird, 2003). The benefits to ship owners from a global strategy should be low cost and high efficiency. To gain the benefits of this strategy the key is to have a central decision making process which can handle such complex organisations (Baird, 2003). To gain competitive and comparative advantage over its rivals buying large vessels in the fleet such as containers or cape size bulk carriers is important. Mergers and alliance with companies is also a good option to increase the size of fleet and to share the risk (Baird, 2003). In container customer satisfaction is an important part of the business. (Baird, 2003) Hence companies tend to add value to their value chain by use of technology such as giving door-to-door service or by giving them faster service.

MOL global strategy

MOL is a shipping and transport company trading its ships all over the world. MOL has different types of ships and has offices and subsidiaries all over the world. MOL can be termed as a multinational enterprise.

MOL launched its Mid-term management plan in 2007 known as MOL ‘ADVANCE’ Action and Direction at the vanguard of creating excellence (Mitsui OSK lines, 2010).Their main theme is “growth with enhance quality- Becoming the biggest and the best” (Mitsui OSK lines, 2010,p.1). There are five overall strategies in the plan. One of the strategies in the plan is global strategy

Their global strategy is to accelerate globalisation and enhance sales capabilities in emerging markets

Develop business on a global scale to meet diversification of trade.

To expand the business in emerging markets such as India, Middle east, Russia and Vietnam.

To ensure that the fleet expansion is exceeding the growth of sea-borne trade. (Mitsui OSK lines, 2007, p.2).

MOL in line with their global strategy has overcome their weakness by entering emerging markets in Asia and also has used their opportunities by investing in many projects such as the LNG market. Below are the detailed points mentioned how MOL has used their strengths, have tried to overcome their weakness, taken their opportunities and minimised threats.

MOL expanded their fleet of ships from 2007 to 2009 by adding 196 ships, out of which 22 were container and 172 were bulkships. MOL is targeting the China markets which are importing iron ore from Brazil, Australia and India. Hence they are increasing their cape size bulk carrier fleet. With cape size ships such as Brasil Maru which are largest in the world, they get a competitive advantage in the cape size market. MOL will be building 53 iron ore carriers in future out of which 14 ships will be above 200 000 mt. (Nakanishi, 2008) MOL is also targeting the growth in the domestic coast trade in China and India which is expected to grow by 15% volume. (Open sea 2007)

About 50% of small handy max and 20% of handy max fleet all over the world are 20 years and over. With strict regulations in force for old ships, joining of new ships in their fleet will add value to their fleet (Open sea 2007).This well timed expansion of new fleet will help the company to expand more in the bulk carrier market in the developing countries.

Source: (Mitsui OSK lines, 2009).

MOL will also launch their new class bulk carrier called “Handy-Cape type” which will be as per the specifications of the new widened Panama Canal. This will give them the versatility to serve ports all over the world (Mitsui OSK lines, 2010).

In the container market they are expecting a steady rise in future, in-spite of the worse current market conditions. As a long term strategy they are ordering new container vessels as trade is going to increase because of globalisation and increase in population (Mitsui OSK lines, 2007).

In order to increase its bulk fleet they are planning to take over few of the bulk shipping lines which went into bankruptcy because of recession. MOL recons that in-spite of having a high debt ratio funding will not be a problem due to its past record. MOL was one of the few companies which avoided the recession and posted profits in the FY ending 31st March 2009 (Seatrade Asia, 2009).

To target the growing container market in India, MOL has just opened 6 new offices in India which will serve the container and car carrier business in India. These offices can respond faster to the needs of the customer and also provide them high service quality (Open Sea, 2007 & Mitsui OSK lines, 2007).

Global demand for LNG is going to increase many folds in the coming years. LNG will be used as alternative source of fuel as it emits less carbon dioxide than heavy oils. On basis of this future market MOL has grabbed the opportunity and placed order for 6 LNG carriers with an investment of 150 billion yen. (iStockAnalyst, 2010).

MOL has launched its new LNG carriers which have a re-gasification system fitted on board. This system will give an advantage over conventional LNG ships as these ships can discharge cargo at off shore terminals. Hence when these ships will join the MOL fleet they will give a competitive advantage over other companies is terms of safety. (Mitsui OSK lines, 2010)

MOL car carrier division is suffered losses because of the global recession. Hence in order to sustain in the market, MOL initiated downsizing plan, in which they scrapped 21 ships, sold 4 ships and sent 11 ships in cold layup. While they are scrapping ships they have launched a concept car carrier ‘Hybrid carrier’ which uses renewable energy. (Mitsui OSK lines, 2010).

As a strategy to boost up the market for car carriers MOL are going to transport machinery by dismantling them, and loading onto car carriers using Mafi-load trailers. Hence they are targeting heavy lift market by using car carriers and becoming Niche player. (Mitsui OSK lines, 2010)

MOL will restructure its ship management companies so that they can meet the need of expanding fleet and global network. Six ship management companies will be restructured and they will be given individual responsibility as per the type of ship. The headquarters will stay in Tokyo. (MOL Inc, 2010).

Source: (MOL Inc, 2010).

Conclusion

MOL launched its ADVANCE mid-term management strategy which covers the entire operations of MOL. Its global strategy for the next 5 years was to overcome its weakness and to make use of the new opportunities in the emerging markets. MOL has managed to sustain and make profits in the FY 2008 in-spite of economic downturn. This is mainly because of its diversified fleet and its core business which are its bulkships. It has success fully used its strengths to sustain in recession time. Its bulkships revenue has compensated for the loss making container and the car carrier divisions. To keep a strong hold on its bulkships, MOL is continuously striving hard by buying large new ships and phasing out the old ones.

MOLs core business is secured and profit making, hence they can venture into other markets and overcome its weakness. MOL main weakness is it’s over reliance on the Japanese markets. It has overcome the weakness by marking its presence in the emerging markets in India and China. MOL is also increasing its LNG fleet to cope up with the rapid expanding LNG market and now it is the market leader in LNG transportation. MOL is also in the process of restructuring its ship-management offices, so as to keep up with the demands of growing company. With innovative designs for its car carriers and targeting heavy machinery market MOL is trying to gain a competitive advantage.