Analysis on Meli Marine Company

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Despite the changing trends, there are also costs problems. Costs can be divided into variable costs and fixed costs. Bunker cost is one of the variable costs that may fluctuate according to the price of crude oil. The worries of financial crisis and the uncertainty of the price of crude oil together will increase the potential risk of Meli if it expands to trans-pacific market. Additionally, the fixed costs, like the vessel operations/charter cost, will increase, as the company will own more vessels. Other challenges are also worth considering. If Meli decide to expand to Asia-North America market, its target market will shift to the group, a group that with no particular preference. This will not only waste the investment in the specialized container, but also put Meli in an awkward position where it loses the bargaining power due to the large number of close substitutes. Besides, the exhibit 1 depicts that in trans-pacific market, the trade imbalance will occur, for the number of freight flows from Asia is larger than from NA. The highly asymmetrical freight flows will result in a low origin and destination density, which is unwanted.

The current trends and the potential challenges could also be the reasons that although Evergreen Marine and Wan Hai Lines have expanded their market, the main revenues still come from the intra-Asia market. As for Teeh-Sah Holdings, despite the same reasons mentioned, it may quit also for the terminal-management operation can bring more profits (this can be draw from the exhibit 2).

However, the expansion also has many attractions. Firstly, the Asia-North America market is a bigger one with many potential benefits; for example, it can offset the periods of weakness in the intra-Asia market. Secondly, the customers of Meli are loyal enough and some of them need both liner service and feeder service. These two premises somewhat provide Meli with guarantee of customer base, which will make the transition easier. Last but not least, the expanding action may help Meli achieve the economies of scale and then help control the cost per TEU.

Conclusion

In conclusion, the expansion has both benefits and risks. If David decides to accept the advice and acquire the 16 vessels from Teeh-Sah Holdings, he should work out how to solve the challenges, how to adapt to the trends, and how to resolve the potential price war. If David decides not to acquire the asset of the indirect competitors, he should consider the potential profits that are abandoned by him. All in all, David, together with the board of Meli should weight between risks and benefits before making the decision.

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