Shipping Firms Are Dependent on

¶ … shipping firms are dependent on market cycles for their business. Shipping firms tend to act as business aggregators, in part because the shipping business relies on economies of scale for the savings that make a shipping firm competitive. Economically, shipping is essentially a commodity, so maintaining a low cost strategy is essential to winning business. This paper will examine the other main approach to building a business -- adopting a differentiated strategy. By developing a niche, a shipping company can build a market for itself.

For example, FedEx was a niche company when it started. Firms specializing in oversized or dangerous goods remain niche players to this day. A niche strategy in shipping is one where there is reduced dependence on business cycles. Such a strategy would involve specializing in a low volume, high margin sector. In doing so, the business would become dependent on specific companies rather than the economy as a whole. Ideally, these companies would be relatively immune from the business cycle.

An example would be medial isotopes, which demand specialized handling and have demand drivers unrelated to the state of the economy. Developing a niche strategy in shipping that others cannot copy is more challenging. Sustainable competitive advantage usually does not result from physical competence -- eventually FedEx had competition in the overnight space, for example. The best way to avoid competition in a niche shipping strategy is therefore to dominate the industry.

If your competitive advantage is driven by economies of scale and your firm has a dominant size, you will consistently enjoy economies of scale that your competitors cannot match. A non-shipping example would be Wal-Mart, which has buying power other firms cannot match because of its dominant size. The economies of scale approach to difficult to implement for a niche firm, when compared to a low cost firm. It can be used with respect to scale -- areas serviced for example.

If the firm has a product niche and economies of geographic scope, that would provide sustainable competitive advantage to the shipping firm. Unique market opportunities arise when there is a market that is being underserved. For example, if there is a geographic market that is presently receiving poor service, an opportunity can arise. Alternately, there could be a product market that is underserved. These can be identified through observation, but there are also models that assist with identifying niches as well.

For example, a SWOT analysis can be used to help pinpoint possible opportunities in the marketplace that match well with the shipping firm's established competencies (Business Link, no date). Successfully adopting a niche strategy requires that the firm be better than its competitors at something. In the shipping business, this can be speed, customs expediting, or specialized handling, or price. The firm should analyze its internal competencies to identify which ones are strongest before seeking opportunities in the marketplace.

Most firms will not be the best at all of these, so the firm should be realistic about its competencies when conducting a self-assessment. Often, core competencies are well-supported so that they can be sustained over the long-run. There are two main mechanisms for supporting internal competencies. The first is organizational culture. When the culture is oriented towards specific types of achievement, then the culture can become a powerful form of internal control mechanism.

If a firm has decided to pursue a specific niche, the organizational culture should therefore be built around the execution of that strategy. This will drive success and innovation towards that strategy above all others and provide internal control. The other main mechanisms for supporting internal competencies are technology and information systems. These systems can support a number of different strategies, particularly in shipping where tracking goods is critical. The more information management has, the better decisions it can make.

Information systems are seldom sources of sustained competitive advantage, but they do assist management in developing core internal competencies to their fullest. The process of creating a niche shipping company begins with understanding the firm's internal competencies, and the potential the firm has to become an industry leader at any of those. When the firm understands what it does best, management can scan the external environment for customers.