1.0 Introduction 1.1 Background of the report This report is prepared as a fulfillment of partial requirement of Strategic Management Course. Dr Abdur Rab, Professor, IBA, has orally authorized the task of writing this report on “SSA (Stevedoring Services of America) Bangladesh”. This report was assigned to on the mid of November 1999. The submission date of this report is December 25, 2000. 1.2 Objective The primary objective of the report is to fulfill the partial requirement of the course. The secondary objectives of this report are: To find out the vision, mission, goals and objectives of SSA Bangladesh To analyze the traits, players and rivalry existing in the industry To analyze the external environment and the Internal strengths and weaknesses To identify different strategies implemented by SSA Bangladesh.
Transcript
1.0 Introduction
1.1 Background of the reportThis report is prepared as a fulfillment of partial requirement of Strategic Management Course. Dr Abdur Rab, Professor, IBA, has orally authorized the task of writing this report on “SSA (Stevedoring Services of America) Bangladesh”. This report was assigned to on the mid of November 1999. The submission date of this report is December 25, 2000.
1.2 ObjectiveThe primary objective of the report is to fulfill the partial requirement of the course.
The secondary objectives of this report are:To find out the vision, mission, goals and objectives of SSA BangladeshTo analyze the traits, players and rivalry existing in the industryTo analyze the external environment and the Internal strengths and weaknessesTo identify different strategies implemented by SSA Bangladesh.
1.3 Scope This report primarily concerns SSA Bangladesh with some reference to Stevedoring Services of America. By its very nature this report limits itself from going into the very details of the various functional areas like marketing or finance. Here the industry concerned is Container Handling Services and the core emphasize is on those factors which affects the organization as a whole. With this view in mind, this report focuses on the issues like what is the nature of the industry, impact of external environment, various strategies implemented etc.
The study is on the benefits of private container terminal and the barriers acting against the establishment of such terminal in Bangladesh. Till date, only one company – SSAB – has started a project on establishing container terminal in Bangladesh. So this report limits its focus on this specific terminal.
1.4 MethodologyPrimary data were collected through face to face interviews with concerned persons. There were several interviews with the concerned persons. The interviews were quite extensive and time consuming. The officials of SSA-Bangladesh were very much helpful in providing the necessary Data. The interviewed persons include Joe Ritzman, Business Development Manager, SSA-Bangladesh Ashfaque J Rahman, Deputy Managing Director, SSA-BangladeshSome of the data were also collected from the Bureau of Statistics, Dhaka.No sample survey was conducted for collecting primary data.
Secondary data were collected from SSA-Bangladesh, Ministry of Shipping, and some newspapers and magazines and internet.
1.5 LimitationsSome of the limitations we faced while making this report are:
1. Very limited published material is available regarding SSAB.2. Due to financial as well as time constraint, the study team could not
visit the actual field area. As a result, direct interviews of different persons from existing labor unions and the CPA were not possible. For their views, the study team had to depend on the national newspapers and some informed persons.
2.0 Company Background
2.1 SSA SSA Bangladesh Ltd., is a joint venture company between Stevedoring Services of America and Orient Maritime Ltd., Bangladesh. It is, at moment, in the process of establishing two container port terminals, one at Patenga, Chittagong and another at Pangaon, Dhaka with accompanying integrated barge services between the two facilities.
SSA, a US company, is reputed to be the largest independent terminal operator in the world. Currently SSA operates 150 marine terminals & ICDs (Inland Container Depoes) worldwide. In 1996, SSA handled 10 million containers (TEU's) and 43 million tons of bulk and breakbulk cargo in its global facilities.
The establishment of an integrated Container Terminal project of this magnitude, at a cost of US$438 million is a bold undertaking. However, considering the frequent congestion being suffered at Chittagong Port together with the major constraint of inland road transportation being unsuitable for handling heavy loads, it is considered most essential.
The terminal at Patenga will ease the worrisome congestion at Chittagong Port and will further facilitate the ongoing and expanding container handling requirements of the nation.
It is hoped to commence the operation in the year 2002 and SSAB is looking forward to providing the full advantage and economic benefits of containerization to the exporters and importers of Bangladesh.
A. Mission Statement:To provide cost-effective & world-class container handling facilities, to be managed by a highly trained and motivated work force and to be continuously upgraded with improvements in the technology, in order to facilitate growing import and export volumes in Bangladesh.
B. Goals 1. To establish as the most efficient service provider in the industry.2. Provide modern container handling facilities to meet growing import and
export volumes in Bangladesh.3. Reduce waiting time and transit time of feeder vessels between Chittagong
and Singapore.4. Reliable barge service for onward cargoes to and from Dhaka.
C. Objectives1. Handle 150,000 TEUs of container in the first year of operation, i.e. in
2002, and 350,000 TEUs per year in the next three years.2. Acquire 50% of the total market share of container transportation between
Dhaka and Chittagong.
Stevedoring Services of AmericaSSA provides over 100 years of experience in stevedoring, marine terminal and rail yard operations world wide, serving the U.S. West Coast, Gulf region and Atlantic Coast, as well as multiple international locations, including the largest transshipment hub in the Americas- Manzanillo International Terminal (MIT) in Panama.
The company is owned by the Smith/Hemingway family. The family started in the stevedoring industry when Fred R. Smith established Bellingham Stevedoring in 1949. Today, SSA continues to expand under the leadership of its third generation committed to customer satisfaction and continued growth: Jon Hemingway, President.
Headquartered in Seattle, Washington, SSA operates U.S. regional offices in Portland, Oregon; Oakland and Long Beach, California; Mobile, Alabama; and Savannah, Georgia. Overseas, the company maintains offices in Auckland, New Zealand; Colon, Panama; Durban, South Africa; Jakarta, Indonasia; Dhamra, India; Mexico city and Manzanillo, Mexico; Saigon, Vietnam; and Singapore.
Through acquisitions and joint ventures, SSA has become one of the largest independent terminal operators and stevedores in the world. With over 150 operations worldwide, SSA handles every type of cargo and serves every major ocean carrier. In the last year, SSA has handled 4 million vessel TEU’s
worldwide and million containers at over 60 rail yards. SSA has also handled 43 million tons of bulk and break bulk, including:
5.5 million tons of pulp and paper 1.5 million tons of steel 50 million cartons of fruit 1 million automobiles
The flagship of our international operations, MIT in colon, Panama, was developed by SSA Panama, a Stevedoring Services of America affiliate, and Motta and Heilborn families, active in a variety of business interests in Panama. Unparalleled service, expansive berths, deep draft and post-Panamax container cranes set the scene for the largest transshipment center in the Americas.
Services
SSA provides a full spectrum of services, offering clients flexible and comprehensible expertise. SSA services include:
Equipment Procurement: SSA has established long-term relationships with leading equipment vendors world-wide.
Feasibility Studies: SSA has the resources and expertise to provide consulting services for transport related projects anywhere in the world.
Information System Design & installation: SSA’s latest technology facilitates terminal and Stevedoring efficiency, while providing customers with direct control of cargo and equipment. In addition to the actual software program license, it provides training both on-site and at our corporate offices.
Marine Terminal Operations: SSA’s container operations are an essential part of the daily movement and storage of all types of cargo around the world.
The results are: Reduced trucker time Optimal equipment usage Increased vessel productivity Accurate and timely inventory
Immediately and direct client access to, and control over, cargo moving through the terminal.
Marketing Support: SSA will sell the features and benefits of a facility in an effort to attract new business. SSA’s ongoing relationship with shipping lines and transportation companies throughout the world provide a strong potential customer base, SSA will represent its clients and their needs with outside organizations.
Personal Training: SSA thoroughly train their staff through Total Quality Management (TQM), safety, computer and management training courses.
Project Management: SSA’s powerful information management systems use technology to increase efficiency and keep them globally connected.
Rail Yard Operations: SSA’s Rail Management Services has grown to be the largest supplier of intermodal ramp services in the United States, handling over 6,000,000 intermodal container lifts annually and serving every class 1 railroad.
Stevedoring: With thousands of pieces of stevedoring equipment, a large international team of operations experts, and over 100 years of stevedoring experience, SSA is ready to handle any type of cargo, anywhere in the world, including: Aluminum ingots , Autos, Bagged grain, Cement, Chips, Cokes, Containers, Fertilizer, Fruit, Grain, Livestock, Logs, Lumber, Machinery, Ore, Pencil Pitch, Pulp, Scrap Steel, Steel, Sulfur, Trailers, and Yachts.
Trucking & Warehousing : SSA’s bonded intermodal carrier operations offer harbor, railroad and door-to-door traffic on containers, trailers, vans and flatbeds.
StrengthsExperience and expertiseSSA has 100 years of experience in the management of ports and shipping related business and has so far been very successful. At present, the company is operating more than 150 container-terminals throughout the world.
Financial strengthsBeing a huge and successful company, it possesses tremendous financial strengths. Moreover, worldwide financial organizations such as International Finance Corporation (IFC), Internationally Monetary Fund (IMF)
Lobbing powerBoth the Bangladeshi counterpart and the American counterpart have tremendous lobbying power regarding the establishment of the container terminal. The American president himself talked to the Prime Minister of Bangladesh for the implementation of the project while his visit here in Dhaka.
Modern MachineriesSSAB will bring in modern port-equipments such as the gantry cranes in order to facilitate the faster the shipments. It is to be mentioned here that these cranes are totally unavailable in the other ports of the country.
Developing skilled HR through massive trainingThe terminal authority will provide both on-the-job and off-the-job training. Each year the authority will send a bunch of recruited employees to the company’s head office in Seattle, USA, to get them better training.
Best location in the countryThe location of the terminal is strategically the best location to have a container terminal for the country. The reason is that the location is situated at the entry point of the country’s inland waterway. Even the ships destined to go to its main competitor will also have to pass SSAB’s area. Thus, the terminal is likely to attract a large number of ships to take anchor there.
Providing full packageSSAB will provide the full-package facility to those exporters or importers who want to deal with there goods from Dhaka. In case of exporters, the facility includes taking delivery of the goods from Pangaon, Dhaka, sending the goods to Potenga via the company’s barges and finally shipping the goods to the destination from Potenga. Incase of importers, the process will just be reversed and the importers will be taking the delivery of the goods in Pangaon, Dhaka. Enough BerthsUnlike the present scenario of Chittagong Port, the adequate amount of berths will be constructed in order to avoid traffic-jams.
Stable labor situationAs labor-unionism will be totally banned and the labors will be facilitated with adequate remuneration, there is a little chance of unstable-labor.
No waiting timeAdequate berthing facilities together with modern machineries will result in no-waiting time for the ships.
WeaknessLack of contingency planThere is a total lack of contingency plan. In case any barrier occurs in course of providing a service, the company will be totally stopped from doing so as it has not yet thought of any alternative plans for the services it will provide.
Huge exposure to debtSSAB will take huge loans from different worldwide organizations such as IFC, ADB. This will make them exposed to a large amount of debt. As a result, they are likely to be less flexible in financially competing with the competitor.
No existing railroad facilitiesUnlike its main competitor, there is no existing railroad facility from the port to delivery containers via train.
Unavailability of additional land in case they need themThe land provided to SSAB is fixed. They will not be provided any more land even if they need any for future expansion.
3.0 INDUSTRY ANALYSIS
The industry of the stevedoring services in Bangladesh shows tremendous opportunity since the requirement of stevedoring services is multiplying day by day. Again, as the exports and imports through the Chittagong port are increasing day by day at an alarming rate, the existing capacity of the port is becoming less supportive each.
The present container handling capacity of the port is 1.9 lakh TEUs (Twenty feet Equivalent Units) whereas the port had to handle 3.65 lakh TEUs in the current year (1999), and the containers to be handled are increasing at the rate of 20%.
The following table Shows the trend at which containers-handling is increasing each year, the table also includes forecasted figures:
In addition to these, if the neighboring countries are provided with the facility of using Chittagong port, additional requirement will be about 700000 to 800000 TEUs per year.
Again, the requirement of the transport services from Chittagong to Dhaka (and vice-verse) is increasing at the similar rate since Dhaka is the main focus of the imported goods. The barge services SSAB is going to provide will hugely benefited in this regard. This particular service will not only get hold of the increase market in the total market share but also acquire a very good share in the existing market. The reason is that the barge services SSAB is going to provide is a much easier and more reliable process on behalf of the exporters and importers. The service will also help reducing the traffic jam in the Chittagong-Dhaka highway.
In the similar way, the ICD (inland Container depot) to be built at Pangaon will be able to acquire a very good market share as the present ICD at Kamalapur is already having congestion problem.
IDENTIFICATION OF THE COMPETITORS
IN CASE OF CONTAINER HANDLING IN PATENGA
Brand Competitors:Chittagong Port is the only brand competitor of SSAB. SSAB’s container terminal and the part of Chittagong Port engaged in handling containers have similar target market and similar placement.
Industry Competitors: The industry competitors of SSAB are Chittagong Port and Mongla Port, because all of them are engaged in container handling in ports. Mongla port is not a brand competitor because their target market is mainly limited to frozen food products (e.g. shrimp) exporters.
Form Competitors: All types of export-import terminals for trade via air, road, and sea are the form competitors of SSAB. All these provide the similar service, i.e. they facilitate shipment of export-import products. So besides Chittagong Port and Mongla Port, the form competitors are Zia International Airport, Dhaka
M A Hannan International Airport, Chittagong Benapole land port Burimari land port Hilli land port
IN CASE OF BARGE SERVICE BETWEEN DHAKA AND CHITTAGONG
Brand Competitors:The barge service will be provided to only those customers who will use the container terminals of SSAB in Dhaka and Chittagong. Under this circumstance, there is no brand competitor of SSAB, because none has the similar target market as of them.
Industry Competitors: The companies providing barge services between Dhaka and Chittagong, such as
Atlas Shipping
MS Belayet Navigation and company47, Dilkusha C/A, Dhaka
M/S N. N. CorporationIslam Chamber, 12th floor, Motijeel, Dhaka
M/S Islam Navigation
M/S Farooq Brothers169, West Dholaipar, Dhaka
M/S Shiruba Barge Private LimitedJaman Chamber, Dilkusha C/A, Dhaka
Form Competitors: All the transport services engaged in transferring containers between Dhaka and Chittagong are the form competitors of SSAB’s barge services. These include Bangladesh Railway, and other truck agencies.
MAIN COMPETITORSThe main competitor of SSAB are-
1. Chittagong Port, in terms of container handling and2. Trucks, Bangladesh railway, and barge operators in terms of barge
operations.
Because other competitors have minimal affect on SSAB, this analysis will focus on only the main competitors.
STRENGTHS AND WEAKNESSES OF COMPETITORS
IN CASE OF CONTAINER HANDLING IN PATENGA
Strengths of Chittagong Port:
1. Heritage of the CountryFrom long ago, the Chittagong Port is being called the ‘Gateway to Bangladesh’. It has a long history of over 100 years. It has played and is playing the major role in the expansion of trade in Bangladesh. From 1977, the port is handling containers. So, in spite of its deregulation, the port is still trusted by the customers.
2. Government SupportAs a government organization, the Chittagong Port gets full government support in all its activities.
3. Existing road & railroad facilitiesThe Chittagong Port has direct linkages with major highways and railroads, which are essential for carriage of containers.
4. Availability of additional land
Chittagong Port has additional lands under its ownership, which will be available in case of any future expansion of the port. Thus the port can increase its container handling capacity easily.
Weaknesses of Chittagong Port:
1. Inadequacy of BerthsThe port lacks adequate berths, which has led to an inability to properly maintain the existing port, resulting in inefficient use of men and equipment, and cargoes are also being moved in areas that are not port property because the port simply cannot handle the workload.Ports are generally considered to have reached full capacity when the available berths are occupied from 70 to 80% of the time available. At this point, the demurrage charges from vessels standing by awaiting a berth become so large as to make such transportation uneconomical. Due to the inadequacy of berths, the Chittagong Port is currently operating with all berths occupied more than 94% of the time.
2. Inadequacy of Modern FacilitiesBeside the insufficient-capacity of the container yard, the port also lacks the availability of much-needed gantry cranes. And due to lack of these cranes the ships use their own cranes to deliver or acquire the containers. The port also has a huge insufficiency in modern facilities, such as forklifts, toplifts, RTGs etc.
3. Shallowness of the draftIn addition to these, the draft of the shipping Channel at the port is shallow, only 9.14 meters, which is not enough for mother vessels to berth at the Chittagong Port jetties.
4. Inefficiency in Operation and ManagementChittagong Port Authority (CPA) has problems in operation & management. Some problems related to container handling are as follows.
The decade-old container terminal of the port runs in an inefficient manner. The stuffing and unstuffing of the container boxes are done in a crude way.
No flow chart is maintained for the movement of the containers.
5. Labor Unrest
Labor unrest is the most common phenomena related to Chittagong port. These unexpected events occur as a result of heinous activities of various registered and unregistered labor unions.
22 registered and 2 unregistered labor unions are involved in the activities related to Chittagong port. About 20 thousand laborers are directly or indirectly related with port activities. None of them are of port authority. So the authority has no control over these laborers. As a result, even a little quarrel between laborers of two different groups (unions) manifolds in thousands of problems. At first, one group stops working. As the groups are interrelated in their activities (such as, Truck Owners, Truck Drivers, Helpers), whenever one group stops working the whole chain has to stop. Some self-seeking officials of the port try to intensify the problem, so that they can get more money form the parties involved to solve the problem. These labor unions get support from different political parties. And some leaders from these parties earn black money from these activities.
6. CorruptionThe corrupted laborer and employees earn about 70 crore Taka illegally taking help of the chaotic situation prevailing in the port activities. Of this illegal earning, about 60 crore come through Container Handling section.
7. Political Interference
Different political parties back the labor unions. This is the reason behind the strongly rooted standing of these unions. Whenever CPA wants to take any measure against the unruly activities of the unions, it gets strong hindrance from the political parties.
8. High waiting timeAs a result of all the troubles discussed above, the average time for unloading of containers from a ship have become 3 to 4 days, whereas the standard time in this regard is only 8 hours. Moreover, the port is overcrowded with ships waiting at anchor 10 or more days for a berth. These prompted the foreign vessels to impose congestion surcharge, which the shippers found to be unjustified. Through this process, the foreign ship-owners are taking about 73
million dollars. They have also threatened to declare Chittagong port as ‘Exclusion Zone’ (to avoid the port).
IN CASE OF BARGE SERVICE BETWEEN DHAKA AND CHITTAGONG
Strengths of Competitors:
Barge Provide transportation facility for general cargo. Very short-contract process
Trucks Available in many places. Takes less time.
Bangladesh Railway Takes less time than the barge service to be provided by SSAB. It is the only competitor, which provides transportation of containers.
Weaknesses of Competitors:
Barge Cannot provide the bill of lading facility at Dhaka. Do not handle containers.
Trucks Most costly Lack of security – high chance of accidents, exposed to weather. Cannot provide the bill of lading facility at Dhaka.
Bangladesh Railway More costly than Burge service Cannot provide the bill of lading facility at Dhaka.
COMPETITORS’ STRATEGIES
IN CASE OF CONTAINER HANDLING IN PATENGA
Chittagong Port’s Product Strategy:
The container handling service provided by Chittagong Port gives us a picture of haphazard product strategy. Being in a monopoly situation, at present, Chittagong Port is giving the minimum care in providing the service to its customers. The current situation of the product (container handling service) includes Bureaucratic hazards More than standard time in delivery of the containers Excess cost due to congestion and bribery to the labor leaders.
Therefore, from the above condition of the product, it can be deduced that the product strategy of the port is just to load-unload the containers of the customers and the port simply doesn’t care about whatever happens to the containers of the shippers. It’s the headache of the customer (rather than the port authority) so that they get a good service. It is simply take it or don’t take approach.
Chittagong Port’s Pricing Strategy:
In the 1980s, the port authority undertook a project for determining pricing policy of different services. The objective of the project was to formulate the pricing policy of Port Authority, and to prepare a tariff structure with as appropriate management accounting and operational information and Statistics. The first phase of the study was completed in 1982. The study proposed a revised tariff structure. The Authority, based on this report, engaged consultants to calculate a tariff rate to a level aimed at – full recovery of its cost of operation, and to generate sufficient fund to meet the demanding development
expenditure, and to fund the servicing needs, and to implement the accounting system.
The pricing needs to be approved by the Ministry of Shipping. Time to time, the tariff rate is revised, but the objective is same in all the revisions. The latest changes were brought in 1990.
Chittagong Port’s Promotion Strategy:Being a public organization, Chittagong Port does not make any kind of promotional activities. Besides its present monopoly makes the usage of the port even without any kind of promotional campaign. According to the Joint-Secretary of the Ministry of Shipping, “The monopoly status of the port together with the well established image do require any promotion in order to attract customers.”
Chittagong Port’s Placement Strategy:
The container handling service provided by Chittagong Port is provided directly to the customers without any types of intermediaries. In fact, the process is as follows- The exporters-importers contract with the main-line operators to handle
their goods by containers. The main-line operators contract with feeder operators (shipping agencies)
and transfer the containers to them. In this transferring process, the Chittagong Port plays its role in container handling.
The decision of using Chittagong Port is done while opening L.C. In most cases, the shippers themselves decide which port to use to handle the containers. But sometimes, the shippers seek help from the mainline operators to decide about using the port. The customers are not provided with any types of agency facilities from where they can make contracts with the Chittagong Port. Rather the contract had to be made directly with the port authority.
IN CASE OF BARGE SERVICE BETWEEN DHAKA AND CHITTAGONG
Product Strategy:
Barge
Barge service from Dhaka to Chittagong (and vice-verse) provides services that include carriage of goods that comes in or goes out in the form of containers from Chittagong Port. In the case, the barges carry the general cargo only from Chittagong to Dhaka. The containers that come from outside are at first unloaded at the port, then they are unpacked there and ultimately loaded into the barges with the help of their own cranes or with manual laborers. The goods are kept in the piled-up form while being carried in the barges.
TrucksTrucks provide the transportation of containers from Chittagong to Dhaka. Very few trucks in Bangladesh actually can carry the containers. They transport goods after releasing them from containers. This requires more manual processing. So the consignees and shippers cannot take the full advantage of container transport in boxes as close as possible to their premises. The truck operators take some care on the goods with poorly trained and mostly illiterate employees and workers.
Bangladesh RailwayBangladesh railway has direct link with Chittagong port. From the port they load the containers on its wagons and carries them to ICD in Dhaka, and vice versa. Railway provides safer and cheaper service. But sometimes it fails to meet the timetable.
Pricing Strategy:
TrucksThe price set by trucks varies from owners to owners. Since most of the trucks do not have any corporate entity, they charge up to the mark possible. In this scenario, the trucks set their prices, which will maximize their profit per contract. Often, the truck drivers themselves make the pricing contract with the customer for any particular trip.
Bangladesh RailwayBangladesh Railway’s pricing objective is to maximize government revenue. With this objective in mind, the price is set so that BR can acquire a significant market share. However, it does not provide any commission to the customers who bring huge number of containers. The price per container varies according to size.
BargesCurrent profit maximization is the pricing objective of the barges. The prices don’t vary per contract as was in the case of trucks, rather a fixed rate per ton is determined. Charge is different when the full barge is hired.
The competitive environment
Threat of new entranceWith a multitude of barriers to overcome, it is highly unlikely for any new player to enter the market. As most of the barriers are non-market in nature it is very difficult if not impossible to overcome. They are-
Social barrierSocial consideration simply cannot be ignored, as the any investment this big would have a definite huge impact on the society. There is a misconception of the influential part of society about losing sovereignty or drainage of profit and capital to foreign country in such kind of investments. Also they oppose any such investment as they view it would ruin the prospect of Chittagong Port, the long cherished economic gateway of Bangladesh.
Political barrierThe political condition of Bangladesh itself acts as a barrier to any foreign investment. As it can be assumed that an investment of this kind has to be financed from outside the country. Even if it is in favor of the economy if it conflicts with the interest of any political party it is likely to face heavy protests. Subsequently creation of disturbances would be ignited to in an effort to delay if not abandon the project. This kind risk exposer would definitely give a hard time to any new entrance even if the market potential is very lucrative.
Bureaucratic BarriersAny company willing to enter will have undergo a series of procedures involving documentation, licensing, leasing etc. to start their operation. It is not unknown, that the bureaucratic hurdles are quite significant in signing agreements prerequisite for starting the project, such as -
Implementation AgreementLand-Lease Agreement Operating-AgreementAgreement with Water-Board
Even when some agreements are signed the implementation phase never intends to start. This can be frustrating.
Favorable locations and government subsidies would be the other major barrier for any new entrance. As we have a limited shore area and most of which are unfavorable to build any such facility, it is would be very difficult for any new company to find a strategically advantageous location. In case of government subsidies, any price war would definitely be lethal to the new entrance. Also there are some switching cost involvements as Chittagong port has some agreements with few shipping companies, which would have to incur additional costs in order to use the other facilities. I addition to that any facilities of such kind requires transportation facilities to ensure smoother delivery of goods. As Chittagong port has its own rail tracks and roads built by the government in addition to the extended service rendered by Bangladesh Railway to transport their containers, it would be very expensive for any new player to engage in this sector.
The capital requirement in this project is so high that only few of companies would be able to invest. Also the uncountable impediments in the way of establishing such facilities make this huge investment even more unjustified.
The only positive factor that may contribute to any new entrance is the level of differentiation that they can bring in the market. As the service rendered by Chittagong port is not that satisfactory any improvement or addition to it would increase customer value hence would work in favor of the new company.
The other barriers like economics of scale, experience effects would not impose any serious threat as the existing facilities any indisputably inadequate. At the same time this industry is dominated with players who have a long history of their own operations, rather than be challenged by the experience of the existing players they might very build their strength on it.
Product DifferentiationCapital RequirementsSwitching costAccess to distribution channelAnticipated growth
Bargaining power of the suppliers???????????????
Bargaining power of the Customers
Threat of substitute productAs the major service offered in this sector is container service, there are in fact no substitutes if the consideration of cost taken. The closest substitute would be the air cargo services which is buy far much more expensive than container services.
Intensity of Rivalry Among CompetitorsCurrently there is do competition in this industry. Chittagong port being the only player apart from Mongla port which does not stand for the same level of competition, the market can be characterized as a monopoly. But if we consider international competition there are a number of competitors like Bombay, Singapore. Strategically, Bombay poses much threat as importers are finding it beneficial to carry out their operations from Bombay. The reasons are basically the cost and the time factor. Chittagong port charges
one of the highest rate I this region and the typical offshore harboring time is 8-10days. With this kind of delay and cost involvement it is highly unlikely to stick with Chittagong port’s offering.
4.0 Environmental Analysis
ECONOMIC ANALYSIS1
Economic cycle stage: stagnant
Rate of growth: 5.2%
Rate of inflation: 8.8%
Employment level: no. of officially employed-5.6 Crore, no unemployment figures given in statistical yearbook.
GNP: [nominal] -3757 Crore Taka
Amount of national debt: US$14033mil
Consumer Price Index: 208.7 (base: 1985-86=100)
Median Income per household: [GDP per head TK. 13655 savings rate: 5.4% of GDP
International Rate of Exchange: Tk. 51.25/US$
LEGAL ANALYSIS
Current Trend
Although the development and maintenance of the infrastructure in transport sector is traditionally controlled by the GOB, the current trend is toward encouraging the involvement of private sector through modifying the rules and regulations in their favor.
To encourage foreign investors in establishing different facilities (e.g. EPZ, container terminal, port), the government is now offering BOO (Build, Own, & Operate) package to them. Under this package, the investors enjoy the ownership of their establishment in a ‘Chirosthayee Bondobosto’ policy.
1 Bangladesh Statistical Pocket Book – 1998.
The government is also offering BOT (Build, Own, & Transfer) package, where the investors operate the establishment for 30/40 years as per agreement and then transfer it to the government. SSAB is enjoying the opportunity of BOO and the policies are friendly for their operation.
“National Policy for Ports, Maritime Shipping and Inland Water Transport” supports the construction and operation of private container terminal.
“The Fifth Five Year Plan (1997-2002)” has a provision to implement this project in order to increase the involvement of private sector in economic activities of the nation.
Regulatory Agencies: CPA Construction and operation of the container terminal will be regulated by
DOE (Department Of Environment). The terminal will require an Environmental Clearance Certificate, which will have to be renewed each year.
Political Analysis
The political environment of Bangladesh is a really challenging for SSAB. Several strong political factors are involved.
First, the mayor of Chittagong is inserting his influence and pressure to cease the activities of SSAB. He argues that this private container terminal will ultimately destroy Chittagong port and make thousands of workers unemployed in there. The top most decision-makers have given their consent to implement the project, but the mayor, being a ruling party member is obstructing the project, criticizing ministers-concerned in public. Mr ABM Mohiuddin Chowdhury, the mayor, is a very powerful political figure in Chittagong. Unless he gives the green signal, it is quite impossible to implement the project.If the mayor can be convinced regarding the benefits of the country and Chittagong city itself, SSAB can speed up the process of setting up the new facilities. But the government and ruling party leaders have to initiate the process to clear up the confusions. Recent developments do not indicate those sort of positive signs. The present shipping minister does not want to face the mayor with the issue.
Second, at present, Chittagong port is the largest container facility provider in Bangladesh. Chittagong Port Authority (CPA) is actually enjoying monopoly. Under the circumstances, organized syndicates in the port are exploiting the users (exporters and importers). These syndicates include labor union leaders, equipment operators, C&F employees, responsible officials, etc. Total 70 crores of taka is earned by these syndicates in a year from the users of the port in illegal manner. The private facility will certainly hamper the interest of these syndicates. Many of the syndicate members have close ties with the high ranked political figures of the country. These syndicate members are using political shelter to protect them.Strong commitment of government and awareness among the concerned citizens can easily overcome this barrier. Almost all of the local political powerhouses have given their support to this venture. So we think that this issue will not be very difficult.
Third, some left leaning and some conservative politicians apprehend that this facility will be against our sovereignty.It is the age of cooperation and freedom. In the age of free and liberalized trade we have to open ourselves to reap the benefits. In Bangladesh left leaning parties have a very small stake. So we hope that they cannot make a considerable impact on SSAB.
Fourth, general people fear from some groups that are actively supporting the proposed venture of SSAB. Some of the individuals who are supporting SSAB have negative impression on public mind due to their previous deeds. So opponents are mobilizing public opinion against SSAB.We hope that the fear on public mind can be removed through widespread promotional campaign. The real value of the service is very high as it will lead to increased direct foreign investment and trade opportunities for Bangladeshi businesses.
Fifth, international political aspects are very much related to SSAB.Foreign ship owners’ organization based in Singapore have repeatedly warned CPA to declare it as ‘exclusion zone’ as the ships are experiencing unnecessary harassment. In several occasions they started charging
‘congestion surcharge’ on the users. As a result there is a strong need to set up an alternative to make Chittagong port more attractive for foreign ship operators and users. This international pressure is helping SSAB to implement its project.
The parent company of SSAB is SSA, which is situated in USA. The US government, therefore, is very much concerned about its implementation. Secretary of state Ms Madeline Albright personally ‘requested’ our Prime Minister to help the implementation in faster pace. International lobbying is working for SSAB. So we hope that the top policy makers and decision takers will understand the importance of the benefit through SSAB. If US President comes to Bangladesh in next year he will visit the proposed project area. This will certainly give importance and pressure on government. The bureaucratic hazards will reduce, as all the concerned officials will understand the importance.
SOCIAL ANALYSIS
Cultural values1. Prone for using imported products, especially from the western world – Our
society experienced a long era of state owned industrialization. In that time those State Owned Enterprises (SOEs) failed to maintain quality, sought by the customers due to their inefficiencies and technological limitations. But in recent years private sector is flourishing and domestic organizations are trying their best to produce quality products. As a result people are now slowly recognizing our domestic product’s quality in certain sector. In most likely scenario, this perception of people will remain for a considerable time and import of foreign products will continue to rise.
2. Decline of collectivism – People are now becoming more and more individualistic. The concept of ‘joint family’ is almost extinct now. People think only in terms of his/her own interest.
3. Urbanization – The society experienced rapid urbanization in major two cities of the country. This rapid and over urbanization made people busier. Their lives become more competitive as the opportunity of employment is getting reduced.
4. Friendly attitude to Foreign investment – There was a time when general perception of people and government towards foreign direct investment was dubious. But with the changing world, that perception is fading away. Government also encourages foreign investment with lesser regulations in profit repatriation.
5. Teen-age concept – Special need of the teen-aged people is recognized. Recently they have started forming clubs.
6. Education in rural area – The literacy rate among village people is increasing due to government and NGO activities. NGOs are playing very active role in rural education and sustaining them through different income generating activities. As a result purchasing power in rural area is increasing. Moreover they now make decisions in more rational and logical manner.
7. Impact of Satellite TV channels – People of these days pass their time mostly by watching satellite TV channels. TV has become the most important learning media, especially for the young people. People are getting more westernized in their clothing and attitudes.
Social group values Work: At present, a tendency to improve office atmosphere is observed.
Many organizations, especially in private sector decorate their offices with expensive imported products. These organizations also value their employees and tries to implement cohesive working environment.
Leisure: Some entrepreneurs have invested in the development of private amusement parks. Leisure time is spent in mainly indoor entertainment and readings.
Marriage: Very often, individuals make their own choices in having their marriage. This phenomenon was quite low in previous years.
Divorce: In our country, divorce rate is quite low, considering the overall population. But the rate is increasing among the villages and cities.
TECHNOLOGICAL ANALYSIS
Domestic Technological Environment within the Container Handling Industry:Domestically, Chittagong Port and Mongla Port are engaged in container handling. Both these ports are equipped with traditional technology. The technology currently used in these two ports are mostly labor intensive. They don’t have any gantry cranes or any other advanced equipment that are very much needed in any modern port. A committee has been formed comprised of the top officials of the Ministry of Shipping and CPA in order to equip Chittagong Port with modern facilities. But its activities are reportedly lethargic. An attempt is being taken to establish an IT department in each of the existing ports but its implementation is yet a long way. Due to the public ownership, the existing ports are having tremendous barriers from the political party backed labor unions whenever any attempts are being taken to install any advance machinery. These barriers are occurring because of the fear of loosing jobs due to mechanization. Despite all the problems, some technological improvements are always taking place but the industry is always lagging far behind the world class. The most surprising of all, not any of the existing ports possesses gantry cranes which is very much required for proper handing of the containers whereas the advanced ports such as Singapore Port has up to 300 gantry cranes.
Foreign Technology within the Container Handling Industry:Around the globe, the technology has made strides as far as the container handling industry is concerned. Many often the berths are allocated, anchorage are planned before the ships reach the ports. Almost all ports have VTIS (Vessel Traffic Information System), which closely monitors the movement of the ships until they are clear of the straits, safely alongside or at anchor. The ports also have Electronic Navigational Chart (ENC) for use with Electronic Chart Display and Information System (ECDIS). Besides all these facilities, each modern ports are equipped strong radar, Gantry cranes, toplifts etc.
Domestic Technology outside the Container Handling Industry: At present, a trend toward the computerization is observed in many of the
offices. People are increasingly using motor vehicles.
Foreign Technology outside the Container Handling Industry: Automation is taking place in many industries. Continuous improvement in air-transportation.
OPPORTUNITIES AND THREATS TO THE FIRMOpportunities: Boom in the garments industry – increase in container traffic Present government’s welcome attitude towards the foreign investors Very relaxing law to FDI (Foreign Direct Investment) Current trend towards urbanization Increase in the number of educated people Disorganized, poorly established, inefficient competitors. Friendly attitude of the local people towards the foreign companies and its
foreign employees. Possibilities of giving neighboring countries (such as Nepal) access to the
port. International support.
Threats: The fall of garment industry after 2004 due to GAAT The establishment of another terminal with huge capacity by CPA Bangladesh government’s giving permission to another company to build
another container terminal Natural threat-Cyclone The vulnerable condition of the economy. Hartal culture of the opposition parties – highly unstable political
environment. High protest from the Chittagong Mayor. Protest from the trade unions.
5.0 Implemented Strategies
Corporate Level Strategies of Stevedoring Services of America (SSA):
SSA has over 100 years of experience in stevedoring, marine terminal and rail yard operations in 150 locations worldwide, serving the US West Coast, Gulf Region and Atlantic Coast, as well as multiple international locations. This is the outcome of SSA’s Global Diversification Strategy which is to enable the company operate successfully as well as profitably in multinational locations using its competitive advantages and tapping corporate resources – expertise and experience - worldwide.
So, the decision to establish a container terminal in Chittagong, Bangladesh and ICD in Dhaka, Bangladesh comes within SSA’s global diversification strategy.
However, SSA implements global diversification strategy through acquisitions and joint ventures and has become one of the largest independent terminal operators in the world. In case of Bangladesh, it has formed a Joint Venture – Stevedoring Services of America – Bangladesh (SSAB) with Orient Maritime Limited to seize the unique opportunity of providing such services.
Corporate Level Strategies of Stevedoring Services of America-Bangladesh (SSAB):
SSAB undertakes a Vertical Integration Strategy in order to provide the “best” possible container handling facility to its customers in Bangladesh by offering delivery of goods at Dhaka by own barge service, taking charge of export goods from Dhaka, providing Bill of lading at Dhaka along with its major service of container handling in Chittagong.
These above mentioned three services are usually performed various other different business, but SSAB decides to integrates these three business to its core business for smoother, better-coordinated operations which will give SSAB competitive advantage over Chittagong Port to customers.
The means used by SSAB in implementing this strategy is internal development, i.e. the company is using its own expertise, resources and experience in developing these businesses.
Business Level Strategies for SSAB:
PRODUCT DIFFERERENTIARION:
SSAB, in order to compete with Chittagong Port, adopts product differentiation strategy. It has differentiated its core service – container handling in its Chittagong terminal – from its main competitor Chittagong port, with augmented services like the transportation of container between Dhaka ICD and Chittagong by own barge service, and providing Bill of lading at Dhaka ICD. This whole integration of all of these services can be treated as a full container transportation / handling package of services, which gives a competitive advantages to the SSA over its competitor, that cannot provide such differentiation.
On the other hand, product differentiation can also be viewed also in terms of providing efficient service. Customers’ need is a flawless and timely transfer of containers. So SSAB focuses on offering the customers the most efficient container handling services currently available in the country. In this regard, SSAB’s strategy is to be equipped with world-class technology and to operate these facilities with well-trained employees. Thus SSAB’s business level strategy is differentiation in terms of efficiency in container handling.
Tactics Pursued: In order to implement the above mentioned product differentiation strategy, SSAB has been using the following tactics:
Pioneering SSAB is the pioneer in Bangladesh in introducing state of the art container handling faculties along with augmented services such as transportation of containers between Dhaka ICD and Chittagong terminal by its barge service, and providing Bill of Lading at Dhaka using its trained human resources and years of experience. The company is thus enjoying first mover advantage as it has initiated such differentiation prior to its existing competitors as well as would be competitors. As a result of using this tactic, SSAB steps a long way forward to its competitors.
CaptureSSAB has a strong advantage over its competitor Chittagong as it has a strategic alliance with SSA, which has expertise in container handling using state of the art equipment, technology and trained employees. SSAB will be this advantage in order to combat Chittagong port.
Functional Level Strategies:
Financial Strategies
Strategy 1SSAB will allocate its financial resources in the most efficient manner to achieve an IRR of 25%. Regarding the construction phase, SSAB will acquire loans from various financial institutions such as: International Financial Corporation (IFC) World Bank Infrastructure Development Company Limited (IDCOL)- a non-bank financial
institution of Bangladesh. Overseas Private Investment Corporation (OPIC)The cost required to implement the project will be almost fully financed by the above mentioned organizations and the rest (quite negligible) will be financed by SSA-International and Orient Maritime Ltd.
Strategy 2During the operational stage, SSAB will fully finance its operational cost from the revenue collected and it will also pay the loaned amount simultaneously. The pay back period of the loaned amount has been estimated to be 30 years.
HR Strategies
Strategy 1In order to have a loyal, and satisfied work force, SSAB will provide a high remuneration (higher than its competitors).
Strategy 2
SSA will provide several fringe benefits such as providing onsite housing, medical facilities. The Human Resource section of the firm will undertake these facilities.
Strategy 3Training program to the key managerial posts at the headquarters of SSA at USA etc will also be undertaken in order to increase the efficiency of the employees.
Strategy 4To motivate the local people, SSAB will recruit 99% of its employees from Bangladesh.
Operations Strategies
Strategy 2In order to provide efficient service, SSA will take steps to fulfill the installation of the contracted equipment, like gantry cranes, toplifters, forklifts etc.
Strategy 3SSA will bring in USA-developed software in order to operate the modern machineries as well as to keep track of all information regarding the operation of the firm.
Strategy 4Preplanned allocation of berths and anchorage- SSAB will establish a totally computerized control room, which one of the many functions would be to allocate the berthing facility and anchorage before any ship, reaches the port area. This facility will enhance the activity and will help SSAB in time service.
Strategy 5A division of marine safety and pollution will be established to provide the special service in response to the social need
Marketing Strategies
All efforts of the marketing will be focused on the quality leadership (timely and efficient service) so that customers perceive SSAB’s service with high value. This will ultimately help in achieving the desired market share since customers in this sector are very much quality sensitive.
Strategy 1
Positioning the container handling service to the exporters-importers as the most efficient one in the country with the help of modern equipments such as gantry cranes, toplifters, forklifts etc.
Strategy 2
Additional facilities such as the onsite rest house, customer information booth will be established in order to acquire loyal customers.
Strategy 3
Different customer segment will get differentiated service such as frozen food storage facilities for the food exporters- importers, RMG storage facilities in case of hartals etc. This facility will be provide in order to enhance proper shipment.
Pricing StrategyPricing aimed at Achieving Product-Quality Leadership.Different price offers for different segments in order to facilitate the target market.
Placement Strategy Direct linkage with the end-usersPlacement through mainline operators
6.0 Recommended Strategies
Corporate Level Strategy SSAB needs to diversify its business more to use its core competence as well as increase power over its competitors, should extend its Vertical Integration Strategy.
Extension of Vertical Integration
SSAB should introduce railroad facility along with its existing container handling and other services in order to offer customer more value. This will enable SSAB to move containers using rail cars other than trucks from port side to its dockyard. On the other hand, those customers want to avail Bangladesh Railway to transport container form Chittagong, they can use the rail cars conveniently and less costly from SSAB’s container terminal.
Advantages1. SSAB can use its parent company’s yearlong core competence in rail road
operation2. SSAB will be able to increase its market power to a great extent.3. It will decrease the cost of container handling between shipside to
dockyard.4. SSAB can then attract more customers, especially those avoid SSAB’s
terminal because of the inconvenience created by not using Railway.
Disadvantages1. The installation of railroad will require huge setup cost2. There might be a chance that customers may prefer using railway to SSA”s
own barge service as it takes more time.
Business level StrategyExtension to Product Differentiation
SSAB, as a part of extending its vertical integration strategy, need to carry out more product differentiation through introduction of railroad facility. This will add a new service to the existing services. This will help SSAB to differentiate itself from its competitors, than previously.
Advantages1. Customer can get a more extended full bundle of services along with core
service of container handling at Chittagong.2. More differentiated than its competitors.3. It will decrease the cost of container handling between shipside to
dockyard.4. SSAB can then attract more customers, especially those avoid SSAB’s
terminal because of the inconvenience created by not using Railway.
Disadvantages1. The installation of railroad will require huge setup cost2. There might be a chance that customers may prefer using railway to SSA”s
own barge service as it takes more time.
Quick Response
In order to compete its major competitors Chittagong port as well as Bangladesh Railway, barge service and trucks more effectively, SSAB should follow a Quick Response Strategy along with its Product Differentiation Strategy so that it can enhance its competitive advantage and therefore increase the firm’s value.
Using a state of the online MIS system, decision support system (DSS), team based decision making approach, SSAB can develop a quick response strategy. Advantages The advantages behind adopting Quick Response Strategy are as follows
1. In a highly volatile environment like Bangladesh, if a business fails to respond quickly to changing situations or competitive activities, it will not be able to survive in the long run.
2. Quick response will allow a firm to obtain competitive edge and to create value that cannot be created otherwise.
3. As Chittagong port and Bangladesh Railway are government run bureaucratic organizations, they will surely lack this competitive advantage. On the other hand, Barge and truck operators independent businesses, developing and implementing quick response strategy is not possible for them.
4. Quick response will give SSAB more flexibility.
Disadvantages1. To develop quick response through various operational strategies such
implementation of MIS, TQM, employee training, etc. will require increased setup cost.
2. Focus might shift from efficient container handling to sophistication of operations.
Figure: Correlation of Financial Performance and competitive Advantages Product
Differentiation Through Addition of Railroad
Quality Cost Leadership
Quick Response Through Use of MIS, DSS, Team Approach
Competitive Advantage Economic Value Added Market Value Added
Operational StrategyProduct Strategy
Addition of railroad facilityExtension of the full package of services concept – from container handling to transportation to Dhaka, Bill of Lading at
Dhaka
Operations Strategy Installation of state of the art MIS systemInstallation of Decision Support System (DSS)Implementation of TQM and QC
Human Resource Strategy Organize training program for employees for adapting TQM and QC concept and using these in workplaceOrganize training programs for managers for using team based decision making approachOrganize training programs for managers for full utilization of MIS and DSS
Marketing StrategyCreate customer awareness through direct marketing and press conferenceConduct regular research to read current environmental trends as well as customer needs and preferences.
7.0 Conclusion
Existing ports of Bangladesh is operating in excess of reasonable capacities. The result of this overcrowded condition at the existing ports has been increasing prices for transportation due to increasing demurrage charges, thus causing an increase in the costs of goods imported and exported. In a relatively underdeveloped country such as Bangladesh, export is essential to economic development, and economic development is essential to the health and welfare of the people. So, higher costs for transportation ultimately mean slower rates of economic growth.
Private container terminal, to be established by SSA-Bangladesh, has the potential to help the existing ports to be free from overcrowding. The new terminal will also bring world-class container handling facilities in the country. All these will ultimately increase the international trade volume as well as contribute to economic growth.
However, SSA- Bangladesh should be very watchful in carrying out its strategy in a volatile situation like this. Change in the environment both external as well internal must be carefully observed and subsequent strategies needed to be developed and implemented in order to create maximum value for the firm.
