Introduction
Among the leading international containership companies is Costamare Inc., a company that boasts a fleet of vessels (58) that sum up a capacity of 330,000 TEUs (twenty-foot equivalent unit). To further buttress its domination in the industry, together with an inclusion of 10 newly built containerships, the company is looking forward to purchasing a secondhand vessel with a capacity of 9500 TEUs. Costamare Inc. is a reputable company that serves liner companies widely known for its sense of reliability and safety.
Together with its predecessors, the company boasts more than three and a half decades in sea transport. Noteworthy, a decade after its inception saw it venture into container shipment (Costamare Inc., 2011)
Costamare Inc.’s strategy is focused on diversifying its geographical base on financially attractive regions and, to serve a reliable group of pioneering liner companies. The majority of customers enjoyed by the liner are ascribed to Costamare Inc. Some of these customers in recent years include: “A.P. Moller-Maersk A/S, MSC-Mediterranean Shipping Company S.A., and Cosco Container Lines Co.”( Ocean Shipping Company Costamare Falls After IPO, 2011).
Partly, with its interruption-free services coupled with its ability to serve a diverse group of customers in a wider geographical region, Costamare Inc. enjoys goodwill from its customers that boosts its reputation over and above many other players in the industry. Moreover, on delivering its services, the absolute safety of its customers and the ecosystem is put into consideration.
Containerization presents a contemporary and efficient way of transportation that owes its origin to the ancient Greeks that, through a series of revolutions, settled on this form of cargo containment since: it was envisaged to save on time, labor and costs. This, according to McLean, the brainchild of the contemporary containerization about half a century ago, would ease congestion at the ports as well as enhance easy loading and offloading.
Moreover, containment came with its secondary benefit; reduced theft cases. As such, it further condensed on costs as shippers considerably reduced their insurance rates subscription. The inauguration of McLean’s idea marked a major milestone in the shipping industry prompting a change in the structure of the then ports to what it appears today. This enabled the ports to be at par with an upsurge in the number of containers received.
McLean’s idea was later replicated by different companies on different continents, realizing the full benefits of containerization. After a brief recess from containerization, McLean embarked on the same industry though intending to revive an underperforming company-US Lines in the late 1970s. However, after a short stint of successful years, the company was brought down to its knees courtesy of an economic meltdown a few years later (Zikos and Bornozis 2012).
The ‘death’ of US Liners marked the ‘birth’ of Costamare Inc. in the 1980s. Costamare Inc. venture into the container shipping industry presented a unique yet vital trend that revolutionized the industry in the 1980s and 1990s. With two vessels of 2500 TEUs capacity a piece initially, Costamare Inc. represents a company with a humble beginning. Among the pioneer companies, this one represents a novel breed of companies that majored in ownership/management of a fleet of vessels as well as serving major multi-modal vessels as opposed to competing them.
As such, with the engagement of vessels in long-term service contracts and, with the vessel sizes notwithstanding, the company growth was amazing enjoying unrivaled success from its competitors. This initiative has played to the advantage of the major affiliate shipping vessels since it has enhanced the diversification of their respective networks at a faster rate than it would otherwise have been. Moreover, this has enhanced growth in shipment capacity for these vessels.
With these trends, the company signed a contract with Marine Engineering Company Limited and Sungdong Shipbuilding to construct two vessels each of 9000 TEUs capacity in the year 2011. Furthermore, the company entered a new time chartering accords with MSC to employ the services of the vessels for ten years. Noteworthy, the company engaged in a ‘fleet renewal program’ that aimed at acquiring as well as disposing of other vessels.
Among the vessels that are yet to be acquired are three 2023-2024 TEU vessels built between the years 1991 and 1992. On the other hand, the ones that are yet to be disposed of are MSC Sudan, Namibia, and Sierra having a capacity of 1630 TEUs each. The acquisition cost is projected to be $30 million as opposed to $21 million that would be raised from sales of the three companies. Vitally, all funds for the purchases are expected to be own financed (Costamare Inc. History Report, 2011).
All said and done, the essence of writing this paper circles on the strategic management of Costamare Inc. Essentially, strategic management is all about identification and explanation of a strategy that would mark a major milestone of a business such that it propels it to another level over and above other players in the same industry. As such, this idea is always envisioned to improve both the overall performance and the competitive advantage of an enterprise. A business is said to possessing the later when its profitability dwarfs the average profitability of the entire players in the same industry.
To achieve this then the managers ought to know the competitive organizational environment of the industry. The managers therefore must do a SWOT analysis such that they take advantage of the organization’s strength, minimize its weaknesses, take the opportunities and, have threats of the organization in mind. Also, the managers should be in a position to analyze and hence determine which products/services are needed to be added to the product/service portfolio. Significantly, they should be in a position to determine which “market opportunities are worthy of continued investment” (Armstrong, 2006).
This could be achieved through a ‘GE Multifactorial analysis’ (GE Matrix). As such, these represent a synopsis of what the rest of the paper will focus on in an opportunity to show how the best strategic issues could be implemented.
Identifying the strategic issues
A strategic issue is an unresolved issue awaiting a decision that would have a major impact; affecting the path and direction of an enterprise. Thus, this tries to answer either one or extra of the basic ‘Three Strategic Questions’ that include: “what are we going to sell? To whom are we going to sell? How will we beat or avoid completion?” (Ambler, 2004). These issues that find themselves right at the heart of an enterprise perfectly present a better opportunity on how to improve the overall performance of a business.
Identification of these issues is not as simple as one might imagine. This requires brainstorming though it might surface when doing a SWOT analysis. Alternatively, it can be identified simply by defining the idea of ‘Strategic issue’ “before starting the review of information and challenge your team to think about the strategic implications of the information” (Lynch, 2010). Or, strongly advise each team member “to highlight the information worksheet, key information that suggests a Strategic Issue and capture their thoughts on a pad of paper throughout the review” (Menon et al., 1999).
In essence, strategic issues are unique from one company to the other. These keep on changing time and again due to the evolving economic challenges. However, some other common topics tend to generate strategic issues in many businesses. Some of these topics are Strategic focus, Resource limitation, Strategic acquisition, Strategic mergers, Strategic competence, Culture modification, and E-commerce products.
About Costamare Inc. Company, the management realizes the need to increase its capacity owing to the rampant business activities around the globe. The company needs to satisfy its growing number of customers as well as beat its competitors to remain afloat in the industry. Moreover, with the reputation intact, the company needs to venture in new routes to broaden its market share and hence increase its profit margin. This should be done with a great deal of efficiency to maintain its old clients. As such, the management enters an agreement to purchase two units of high cargo capacity (9000 TEUs each) to cater to the ever-increasing number of its clients.
To enhance efficiency, the company sells its old units (MSC Sudan, Namibia, and Sierra) to pave way for the latest models. Moreover, the foundation of its reputation is based on the safety of both people and the environment which is a priority. The company boasts of a track record known for its operating standards. They have incorporated “quality, safety and environmental management system that integrate ISO 9001: 2008 quality management and ISO 1400: 2004 environmental management standards” (Rena’s worst maritime environmental disaster, 2008).
SWOT analysis
As an acronym for Strength, Weakness, Opportunities, and Threats, SWOT analysis represents a perfect audit tool for analysis of an organization’s strategic position in that industry. While a firm’s Strengths and Weaknesses form the internal factors since one can dictate them, Opportunities and Threats represent the external factors as one has no control over them. Its chief function is to spot strategies that will craft a firm business model “that will best align an organization’s resources and capabilities to the requirements of the environment in which it operates” (Mehta, 2000). In a synopsis, SWOT analysis evaluates the positives and negatives of both the internal and external environment of a firm to guide in decision-making.
Strengths
A firm’s mission is realized by the virtue of its strengths. As such, an organization’s strongholds present an opportunity for it to enjoy sustained success over a long period. Strengths can either be touchable or untouchable. These may include, among other financial power, committed employees, and customer’s goodwill.
As regards Costamare inc., the firm enjoys goodwill from its customers and boasts an unrivaled financial muscle. Thus, for this firm to dwarf its competitors and hence take full advantage of ‘Competitive advantage,’ the firm ought to strengthen its customer relations and use its financial strength to venture into new markets. The management had acknowledged this consequently prompting the commissioning of two ships each of 9500 TEUs capacity to cater to the increasing number of customers thanks to customer’s goodwill.
To further enhance efficiency, the management harbors plans to sell old vessels having less capacity to pave way for the latest and much bigger vessels. Vitally, to portray its financial superiority the management insists on the need to obtain funds from within for the purchase of three latest vessels. These present the plans that are yet to be fulfilled. Costamare Inc. serves the biggest ship of all time in terms of capacity in the name of SX Class vessels, a Maersk Line’s ship, having a capacity of 150000 TEUs.
This enables the company to considerably reduce the operation cost, thus increasing the profit margin significantly. To attract the services of Maersk Lines, a major player in the containership, echoes the customers’ growing esteem concerning Costamare Inc. Importantly though, the need of Costamare Inc.’s management to engage the affiliate shipping lines in long term charters irrespective of their cargo capacity boosts cohesion with its partners. As such, committed partnering enables them to work on achieving a common goal geared towards realizing its vision/mission.
Weaknesses
The barrier between the realization of one’s vision/ mission is a weakness. A firm’s weakness decelerates its growth, decreasing the profit margin a great deal. These are factors that fall short of the standard set. Weaknesses in an enterprise may be “depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc” (Kitts, Leif and Tord 2000). Weaknesses can be dictated hence efforts should be made to either reduce or eliminate them. For instance, to beat the weaknesses posed by an inefficient machine one needs to sell it and acquire a new one. Other typical examples of organizational shortcomings are “huge debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc.”(Hill and Westbrook, 1997).
On bringing Costamare Inc. to a spectacle, the management acknowledges the need to discard inefficient vessels that are old and small concerning cargo capacity. On the receiving end are: MSC Sudan, MSC Namibia, and MSC Sierra. These ships were built in the 1960s with a capacity not exceeding 1630 TEUs each. To substitute these, three vessels each of TEUs not exceeding 2024, built in the year 1991, were purchased. This was envisioned to ease congestion as well as serve more customers.
Among the potential sources of weaknesses that might be experienced by the company are increased costs in shipment due to multiple yet low capacity vessels. Perhaps this may be viewed as a flexible means of shipping cargo in periods of low customer turnout. As such, linear programming models should be generated to optimize capacity and efficiency while minimizing costs (Ferrell & Hartline, 2010).
However, in periods of big-time business when there is an influx of customers, it is a worthy undertaking to engage bigger ships with high capacity. This would even be better if bigger ships could be constructed. This though is unattainable because it is believed that there is a limiting technology in manufacturing since it has reached a ‘plateau’. As such, Costamare Inc. ought to consider purchases of more but heavy cargo capacity vessels.
Opportunities
This is an external factor beyond one’s control. This is the environment encompassing the business, which will only benefit an organization once optimized by the stakeholders. The management needs to analyze its environment to formulate strategies that align with it to realize a wider profit margin. This presents a better opportunity to exploit the full benefits of competitive advantage. Opportunities may bud from technology, market, industry/government, or competition. For instance, “increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter the telecom sector and compete with existing firms for revenue” (Hill and Westbrook, 1997).
With Costamare Inc. at the center stage of discussion, an opportunity is presented in the market. Many customers hold this company in high esteem for the quality services it offers. Consequently, this company has become one of the choices of attracting all and sundry.
This increases the number of customers allied to the company relative to other players in the same industry. As such, the company possesses an opportunity to increase its market share in the industry, translating to bigger profit margins. To accommodate the inflating number of customers, then the management ought to consider purchasing more and bigger vessels. These customers could be maintained as long as the quality of services is not compromised. To further increase its customers, the company should consider venturing into virgin markets.
Threats
This represents another external factor that tends to jeopardize the success of a firm’s business. When related to weaknesses, threats compound to the vulnerability of a business enterprise. Threats are not subject to dictate. When a company experiences threats, it becomes unstable endangering its sustainability. Some examples of threats include: “unrest among employees; ever-changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.” (Hill and Westbrook, 1997).
Just like other companies, Costamare Inc. Company encounters a fair deal of threats from other players in the industry. As such, as stated initially, the company uniquely tackles its competitors. It avoids its competitors. This company came to this industry with novel strategies to combat its enemies. It was “among the first of a new breed of container ship companies that specialized in ownership or management of the vessels and aimed to serve the major multi-modal container carriers rather than compete with them” (Armstrong, 1996). Currently, with a good reputation from its customers and affiliate fleets alike the company enjoys considerably a bigger share of the market thus enjoying a partial monopoly. This coupled with its high-quality services presents a better tool for shielding from its enemies.
GE Matrix
This represents a tool that would enable a business owner to decide on which route to take in terms of product/service marketing as well as product/service management. As such, it enables the owner to either introduce or discard a particular venture according to its profitability. This has two axes: business unit strength (x-axis) and industry attractiveness (y-axis). With the data present, and on plotting, the business unit appearing at the top left represents a better opportunity for investment as opposed to the bottom right (Table below) (Collins, Goold and Campbell, 2010).
Costamare Inc.’s services can be analyzed using the table above to determine the most attractive services to engage in.
Conclusion
Conclusively, it can be stated that Costamare Inc. is a firm that possesses an array of opportunities to increase its market share significantly relative to its competitors. With the financial muscle coupled with its unique quality services, this company can widen its profit margin significantly reaping the full benefits of competitive advantage. The strategic issues highlighted in this report will enable the company to successfully grow even as it reaps the benefits of economies of scale.
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