Meli marine essay

2382 Words Feb 8th, 2014 10 Pages
Meli Marine
1. Overview
Meli Marine is a leading player in the container shipping industry on intra-Asia routes and has built a strong presence in the market and demonstrated very high operating margins and operating ROA from 2002 – 2007 compared to its main competitors. As Meli Marine’s CEO, David Tian seeks to steer the company towards expansion in 2008, with an option to acquire 16 vessels from Teeh-Sah Holdings. With these ships, he plans to expand to the trans-Pacific market. However, we believe this deal will not be in Meli Marine’s best interest at the moment, and the company will be better off without the acquisition.
2. Prelude to Acquisition Consideration
2.1 Market Attractiveness: Trans-Pacific route appears attractive as number
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Given the significant risk of drops in volume and price, Meli Marine may not be able to achieve economies of scale nor break-even should such a scenario occur.
3.1.4 Less than Optimal Ship Size: The vessels that Meli Marine planned to purchase were on average 4,500 TEU in size. This is smaller than the ideal size of 10,000 TEU for Asia-North America route. The supersize ships were better able to achieve economies of scale through spreading the fixed cost over a larger shipping capacity. In this manner, due to a lower cost, competitors may be able to successfully undercut Meli through lower pricing. Thus should Meli Marine enter this market, they would begin with a cost disadvantage compared to their competitors. As further elaborated in Appendix B2, the long-distance of Trans-Pacific route also makes it unfeasible for Meli to replicate its successful operational strategy that it has implemented in Intra-Asia.
3.1.5 Backlash from Competitors - Feeders Line Mainline Operators: Expanding Meli’s service to cover the Asia-NA line will likely strain its relationship with existing ‘feeder line’ channel partners (MLOs). The MLOs may stop partnering with Meli for other routes. Further, going head-to-head against established MLOs may intensify the threat of cascades. Also, if the influence of MLOs on current customers is larger Meli’s, the MLOs may coax Meli’s customers to switch

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