General Maritime Corporation Strategy - Term Paper Example

General Maritime Corporation Strategy 2000-2014 Table of Content Evaluation of GMR’s External Environment and its Challenges 2 GMR’s Competitive Advantages 4 GMR’s Strategy since 2000 to 2014 5 Early Years 5 Chartering Strategies 7 Acquisition and Consolidation Strategy 8 Conclusion 8 Introduction General Maritime Corporation (GMR) is a public shipping company that specialises in the provision of international seaborne crude oil transportation services. The company was founded in 1997 by Peter Georgiopolous and has since experienced significant growth and is considered to among the leading shipping companies operating in the wet bulk industry. GMR’s shipping operations are mainly concentrated within the Atlantic basin particularly around the Caribbean, the Mediterranean, North Sea, Europe, Western African and the South and Central America. It operates both small and large crude oil. Currently, the company operates over 50 fleet of wholly-owned vessels which transport millions of oil products around the world. As a company operating in the shipping industry, over years GMR has been susceptible to a wide range of challenges and unprecedented change forces emanating from both its internal and external environment. In order to enhance its profitability and maintain its competitive edge in the market, the company has had to adopt new strategies and re-strategise through the years (GMR, 2014; Plunkett 2009). This paper seeks to critically examine and analyse GMR strategy since the year 2000 to 2014. It will elaborate the major difference in the strategies that the company has adopted over these years. In order to effectively analyse GMR’s strategy this paper will foremost, evaluate the external environment that the company operates in and the challenges it has created over years. Secondly, it will explore and analyse GMR’s competitive advantages within the industry that it operates in. Subsequently, this paper will critically examine and analyse the strategies that GMR has used over the years in order to overcome various challenges in its external environment and enhance its competitive edge in the industry. Evaluation of GMR’s External Environment and its Challenges Generally, shipping is a volatile and complex industry that continuously navigates through many twists and turns brought about by the performance of the global economy. Since the shipping industry is inter-linked with the state of the global economy, it is highly volatile and dependent in trade flows. As a company that mainly specialises in the transportation of crude oil, the demand and supply of services is largely dependent on oil prices. Therefore, the performance and even the profitability of companies in the wet bulk industry can be affected by trade flows particularly those revolving around the prices of crude oil and other petroleum products. An increase in oil prices globally can minimise the demand of shipping services whereas a decrease in price can increase the demand of crude oil shipping services. Since oil prices are always fluctuating, the supply and demand of services for shipping companies such as GMR which operate in this industry is somewhat volatile (Kumar 2009;Lorange 2005). For example, from 2002 the increasing rate of globalization and the rapid development of Asian economies such as China led to added demand for seaborne transport. This brought about unprecedented demand for oil transportation and contracting of new tonnage. However, following the financial crisis in 2008, overall world trade shrunk dramatically leading to an oversupply of tonnage in the market. Consequently, this brought about low freight rates and weak markets (DNV 2012). Secondly, the environment that GMR operates in is highly competitive. Not only are there many competitive players in this environment but these players also employ a wide range of competitive strategies in order to gain competitive advantage over other players in the market. As a result, competition in this environment is intense. Shipping companies based in the wet bulk industry operate under perfect competition market structure. In essence, there are many players in this market and no company has monopoly. Therefore, companies operating in this business environment have to always be on toes so as not to lose their competitive edge. In this business environment, companies with competitive advantage over others are those that more freight numbers and ships with large volumes or capacity (Hill & Jones 2007). In order to gain competitive advantage over other players in the market, a number of companies have formed strategic alliances. This has helped them to increase their freights and volume of their tonnage. Generally, the competition in this industry is intense (Adland, Jia & Strandenes 2006; Lun & Quaddus 2009). Moreover, the business environment that GMR operates in is highly regulated. As a company that offers international seaborne crude oil transportation services, its business operations are not only governed by international maritime regulation but also maritime regulations of the various nations that it operates in. In the international realm, the International Maritime Organisation (IMO), a specialised agency of the United Nations is charged with the mandate of enforcing shipping regulations in order to ensure safety and environmental protection. Over the years, the IMO has introduced strict international regulations that require companies operating in the shipping industry to observe high safety standards and implement measure For instance, in 2010 IMO put a ban on single hulled tankers. As a result, some countries such as Australia, Korea Philippines and European Union countries begun to deny access to single hull tankers (GMR 2012b). The business environment that GMR operates in is also significantly affected by the rapid technological advancements. Almost each year, new technologies are introduced that change the way in which companies operate. As a result, key players in this industry often try to gain competitive edge over each other by adapting to new technologies to improve their operation efficiency. Although advancements in technology have helped to improve efficiency in this business environment, they also put pressure on companies to increase their spending. It has also intensified competition in this industry as most companies are at loggerheads with each other by trying to incorporate the latest technology in order to gain competitive advantage over each other (Blanpain, 2010; IMO 2012; Stopford 2002). GMR’s Competitive Advantages Firstly, GMR’s competitive advantage is largely pegged on the size of its fleet. Currently, the company has over 50 fleet of wholly-owned vessels which transport millions of oil products around the world. A majority of the company’s vessels operate within the Atlantic basin. In this region, GMR has the largest fleet and has established a niche for itself. Its large fleet size enables the company to transport large volumes of crude oil and attract more shipping contracts from different markets. As a result, the company has managed to grow its net voyage revenues from $ 12 million in 1997 to $245.6 million in 2006 (Hotstocked 2014; Plunkett 2009). Secondly, since the inception of GMR’s business operations in 1997, the company has developed strong work relationships with its clients. As a result, the company has a number of loyal clients and long term partnerships. Some of GMR’s long-term clients include; major oil companies such as Lukoil Oil Company, Hess Corporation, CITGO, Sun International Ltd and Chevron Corporation (Plunkett 2009). The mere fact of having loyal customers and long-term business partnerships with large oil companies gives GMR competitive advantage over other players in the market. Moreover loyal clients and long term partnerships provide GMR some of form of stability as far as supply and demand is concerned even as the company operates in a volatile business environment (Plunkett 2009). Moreover, GMR’s competitive advantage emanates from its stringent operating and safety standards. Due to the company’s high quality vessels which are all double-hulled the company has for many years managed to maintain a strong safety record. The company’s commitment to safety and many years of experience in the industry has enabled it gain client confidence in its operations (Hotstocked 2014). GMR’s Strategy since 2000 to 2014 Early Years Following the formation of GMR in 1997, the company had only 6 vessels. Peter Georgiopolous, the company’s founder ensured that the company’s operational costs are kept low by operating with a small staff and outsourcing some business functions. As a new entrant in the shipping industry, the decision to keep its operational costs low was very viable since it helped the company dedicate its revenue towards growth and expansion. As a result, in the subsequent years, the company experienced significant growth (GMR 2014; Plunkett 2009). In 2001, the company decided to public by listing its stocks in the New York Stock Exchange. This move completely changed the dimensions and technicalities of the company’s business. It brought about significant benefits to the company as well as certain implications. Firstly, the Initial Public Offering (IPO) helped the company raise over $144 million. This in turn helped the company to generate the much needed capital for expansion. It also provided the company liquidity and easy access to the debt market. As a result of selling its stocks to the public, the company was able to raise a significant amount of capital for expansion (Gandel 2001).For example, in 2003 the company was able to increase its fleet when it spent approximately $ 525 million to acquire 19 vessels from a Greek firm. Following this acquisition, GMR became the second largest tanker company in the world. In order to actualize this, the company took loans but was able to pay it quickly through the liquidity obtained by going public. However, despite of the benefits gained by going public, the company lost its autonomy since by going public major company shareholders have to be involved in decision making. Moreover going public implied that the company had to disclose its revenue, expenses and debt levels to the public (Funding Universe 2012; Marcial 2003). Tanker Segments Strategy Over the years, GMR has primarily focused on the mid-size segment of the tanker market. The company has two main categories of tankers namely; the Suezmax tankers and the Aframax tankers. The Suezmax tankers are large mid-sized tankers with over 120,000 DWT capacity that can get through the Suez Canal. On the other hand, Aframax tankers are medium sized tankers with about 70, 000 DWT capacity. Later on, the company included two VLCC with a capacity of over 200, 000 DWT in its fleet (Plunkett 2009; Tuck School of Business 2011). The company’s strategy to mainly focus on the mid-size tanker segment is very viable mainly because in the business environment that the company operates, the demand of mid-sized vessels is higher than that of small and large vessels. As a result the company is able to fully meet the demands of this environment. Furthermore, the fact that the company also incorporated the large VLCC tankers makes the company’s fleet more versatile. Thus the company is able to effectively service different types of market. Although the large tankers can generate more revenue they are the least flexible since they are only suitable for specific geographic markets such as the Middle East. However, the mid-sized tankers can serve various markets such as South America, West Africa, Black Sea and the North Sea (Plunkett 2009; Tuck School of Business 2011). Chartering Strategies From Spot Market Strategy to an Integrated Strategy In its early years, i.e 1997 to 2003, GMR mainly operated within the spot market. While operating in the spot market, the company often provided voyage charters that last for several days or weeks. In essence, rather than holding long-term contracts to provide sea-borne transport to particular companies, the company provided voyage contracts for short trips on short notice at varying rates(Funding Universe 2012; GMR 2006).Under this market, the cost for shipping fluctuates from time to time and can vary significantly over a short period. Thus the spot market is generally volatile. Although there are seasons whereby this market generated more revenue than long-term charter market, the risk of solely focusing on this market was very high. The spot market is generally not stable and is susceptible to the negative impacts associated with trade flows (Cullinane 2011; Funding Universe 2012). Consequently, in 2004 the company decided to diversify its vessel deployment strategy. Rather than solely focusing on the spot market, the company decided to employ a more integrated charter strategy that involves combining spot charters and time charters. This came after the realisation that, one chartering strategy cannot be suitable for all business environments. Therefore depending on market conditions the company employs the spot market strategy as well as the long-term time charter strategy. By employing an integrated chartering strategy rather than solely relying on the spot market charter, the company is able to ensure great cash flow stability. Since the time charter strategy involves long-term contracts that extend to several months or years, it provides the company with the much stability needed revenue stream. On the other hand, spot chartering enables GMR to capitalise on short-term and unprecedented opportunities in the market that come about due to changing market conditions (Funding Universe 2012; GMR 2006). In essence, the company’s vessels that operate in the time charters provide more predictable cash-flows, however they generate lower profit margins than the vessels that operate in the spot market especially during favorable market condition. Conversely, vessels operating in the spot market yield unpredictable profit margins and are exposed to the risk of declining tankers rates. Nevertheless these vessels may help to capture more profits than charter vessels during periods when tanker rates are high. Hence integrating both spot and time chartering strategies the company is able to capitalise on the benefits associated with each strategy while at the same time minimizing the impeding risks associated with each strategy (Cullinane 2011; Grammenos, 2013). Acquisition and Consolidation Strategy Since the inception of the company in 1997, the company has been synonymous with acquisition and consolidation of not only its operations but also its financial assets. Over time, the company has particularly become an industry consolidator strategically focusing on acquiring mid-sized vessels and developing building contracts for such vessels. The company has particularly taken advantage of growth and expansion opportunities within its business environment through acquisition and consolidation. For instance, in 2008, the company officiated its merger with Arlington Tankers Ltd. The two companies consolidated in a stock- for-stock combination. This consolidation helped the company to acquire a modern, diverse and high-quality double hulled fleet of over 31 vessels. It also provided a suitable balance between spot and time charter thus helping the company gain earnings and cash flow stability. Moreover, following the consolidation, GMR contracted a revenue stream of approximately $450 million running from 2009 to 2013. In 2010, the company entered into an agreement with Metrostar Management Corporation that saw it purchase two Suezmax and five VLCCs. Subsequently, GMR took delivery of the five VLCCs for approximately $468,000 and Suezmax for $ 76,000 (GMR 2006; Plunkett 2009; SEC 2011). Conclusion This paper has critically examined and analysed GMR strategy since the year 2000 to 2014. It has particularly focused on three key areas of strategy namely; tanker marketing strategy, chartering strategies and acquisition and consolidation strategy. The findings of this paper show that over the years, the GMR has adopted new strategies and re-strategised in order to maintain its competitive edge in the market and address the various challenges in the business environment that the company operates in. For instance, GMR primarily focuses on the mid-size segment of the tanker market because the demand of mid-sized vessels is higher than that of small and large vessels. As a result the company is able to fully meet the demands of this environment. In relations to its chartering strategies, GMR initially focused on the spot market. However, after the realisation that the spot market is generally not stable and is susceptible to the negative impacts associated with trade flows, the company decided to diversify its vessel deployment strategy. Rather than solely focusing on the spot market, the company decided to employ a more integrated charter strategy that involves combining spot charters and time charters. In addition to this, the company has particularly taken advantage of growth and expansion opportunities within its business environment through acquisition and consolidation. References Adland R, Jia, H, Strandenes, S 2006, ‘Asset bubbles in shipping? 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