Strategies of marketing management in container transportation the case of OOCL (Vietnam) co.,ltd

12 CHAPTER 3: OVERVIEW OF CURRENT SHIPPING MARKET AND MARKETING STRATEGY FOR OOCL VIETNAM CO., LTD.. ABBREVIATIONS OOCL: Orient Overseas Container Line TEU: Twenty feet Equivalent Unit

CONTENTS

ACKNOWLEDGEMENT .

ABBREVIATIONS V CHAPTER 1: INTRODUCTION 1

1.1INTRODUCTION 1

1.2.PROBLEM STATEMENT 1

1.3RATIONAL OF RESEARCH 2

1.4RESEARCH METHODOLOGY 2

1.5THE SCOPE AND LIMITATION OF RESEARCH 4

1.5.1 Scope of study 4

1.5.2 Limitation 5

CHAPTER 2: LITERATURE REVIEW 6

2.1LITERATURE REVIEW ON SERVICES MARKETING AND MANAGEMENT 6

2.1.1 Definition of services 6

2.1.2 Characteristics of services 6

2.1.3 Classification of the Service 7

2.1.4 What is Services Marketing 8

2.2LITERATURE REVIEW ON SHIPPING SERVICE AND TRANSPORTATION MARKETING 8

2.2.1 Definition of shipping service and containerized transportation 8

2.2.2 What is transportation marketing 9

2.3LITERATURE REVIEW ON MARKETING STRATEGY AND MARKETING MIX 9

2.3.1 Marketing strategy 9

2.3.2 Developing marketing strategy 10

2.3.3 Targeting a market 11

2.3.4 Strategic Marketing with marketing mix 11

2.3.5 Logical steps in strategic marketing planning 12

2.3.6 SWOT analysis 12

CHAPTER 3: OVERVIEW OF CURRENT SHIPPING MARKET AND MARKETING STRATEGY FOR OOCL (VIETNAM) CO., LTD 14

3.1WORLD SHIPPING SERVICE HIGHLIGHTS 14

3.2VIETNAM ECONOMY REVIEW 18

3.2.1 Gross Domestic Product (GDP) 18

3.2.2 Foreign Direct Investment 18

3.2.3 Overview on Vietnam Import Export activities 20

3.3INTRODUCTION OF OOCL GROUP AND OOCL(VIETNAM) 24

3.4OVERVIEW OF VIETNAM’S CURRENT SHIPPING MARKET AND OOCL POSITION 26

3.4.1 Overview of Vietnam containerized market 26

3.4.2 Transpacific Trade (TPT) 28

3.4.3 Asia Europe Trade (AET) 31

3.4.4 Intra Asia Trade (IAT) 34

3.4.5 Australian Trade (AUT) and others 36

3.4.6 OOCL (Vietnam) sales performance 36

CHAPTER 4: RESULTS AND DISCUSSION OF CUSTOMERS’ SURVEY 40

4.1METHODOLOGY 40

4.2RESULTS OF SURVEY AND DISCUSSION ON FINDINGS 41

4.2.1 Customers’ preference on shipping service 41

4.2.2 Customers’ satisfaction on OOCL service 43

4.2.2.1 Sample profile 43

4.2.2.2 Evaluation on OOCL services 44

4.2.3 Open-ended questions 48

4.3SWOT ANALYSIS ON OOCL(VIETNAM) 49

4.3.1 Strengths 49

4.3.2 Weaknesses 50

4.3.3 Opportunities 51

4.3.4 Threats 52

CHAPTER 5: CONCLUSION AND RECOMMENDATION ON EXTENDED MARKETING MIX FOR OOCL (VIETNAM) 53

5.1TARGET FOR OOCL(VIETNAM) IN NEXT 5 YEARS 53

5.2EXPANDED MARKETING MIX FOR OOCL(VIETNAM) 54

5.2.1 Product 54

5.2.1.1 Short haul vessel service 54

5.2.1.2 Long haul vessel services 55

5.2.2 Price 60

5.2.2.1 In long haul service 60

5.2.2.2 In short haul service 61

5.2.3 Place – Distribution 61

5.2.4 Promotion 62

5.2.5 People 63

5.2.5.1 Short training at work 63

5.2.5.2 Outside training 65

5.2.6 Physical evidence 65

5.2.7 Process 65

CONCLUSION 68

APPENDICES 69

LIST OF TABLES

Table 1 - Evolution of carriers operated fleet and market share year 2000 - 2006 17

Table 2 - GDP growth by year 18

Table 3 - Foreign Direct Investment by country & counted up to 20 December 2005 19

Table 4 - Top Commodities Import Y2005 with associated value 20

Table 5 - Top Commodities Export Y2005 with associated value 21

Table 6 - Top countries import from 2000 to 2005 with associated value 22

Table 7 - Top countries export from 2000 to 2005 with associated value 23

Table 8 - Vietnam overall market volume and OOCL volume year 2005 27

Table 9 - Carriers volume and relative market share ex Vietnam to the United State, year 2005 vs year 2004 29

Table 10 - Top commodities of market vs OOCL share in first half 2005 vs first half 2006 30

Table 11 - Y2005 Vietnam market volume of FEFC members to Eastern Europe (TEU) 32

Table 12 - Y2005 Vietnam market volume of FEFC members to Mediterranean area (TEU) 33

Table 13 - Year 2005 IADA member lifting from Vietnam 35

Table 14 - Lifting review of OOCL (Vietnam) Y2005 Vs Y2004 36

Table 15 - OOCL (Vietnam) review on revenue in year 2005 vs 2004 37

Table 16 - Target for OOCL (Vietnam) to year 2010 53

Table 17 - The increase level for each trade year after year from 2005 to 2010 54

LIST OF FIGURES

Figure 1 - GPD growth year 2000 to year 2005 18

Figure 2 - Top Ten Foreign Direct Investment countries with associated value 19

Figure 3 - Top Commodities Import Y2005 with associated value 21

Figure 4 - Top Commodities Export Y2005 with associated value 22

Figure 5 - Top countries import from 2000 to 2005 with associated value 23

Figure 6 - Top countries export from 2000 to 2005 with associated value 24

Figure 7 - Organization chart of OOCL (Vietnam) 25

Figure 8 - Service coverage of OOCL (Vietnam) 26

Figure 9 - Total Vietnam volume year 2005 27

Figure 10 - OOCL (Vietnam) lifting review by trade year 2005 37

Figure 11 - OOCL (Vietnam) lifting review year 2005 vs year 2004 37

Figure 12 - OOCL (Vietnam) revenue review by trade year 2005 38

Figure 13 - Long haul customers sample 41

Figure 14 - Short haul customers sample 42

Figure 15 - Freight control ratio of OOCL vs market 44

Figure 16 - Customer satisfaction toward OOCL long haul service 45

Figure 17 - Customer satisfaction toward OOCL short haul service 46

Figure 18 - Performance of different departments in long haul service 46

Figure 19 - Performance of different departments in short haul service 47

Figure 20 - Area need improvement first – long haul 47

Figure 21 - Areas need improvement – short haul 48

Figure 22 - SCX (South China Express) service 55

Figure 23 - PNX (Pacific North Express) service 56

Figure 24 - AEX (Asia East Coast Express) service 56

Figure 25 - EU1 (Europe 1) service

Figure 26 - EU2 (Europe 2) service 58

Figure 27 - EUM (Europe Mediteranian) service 58

Figure 28 - Loop A (Australia) service 59

Figure 29 - Loop B (Australia) service 59

Figure 30 - Shipment life-cycle 66

Figure 31 - Business Process Flow Overview within OOCL 67

ABBREVIATIONS

OOCL: Orient Overseas Container Line

TEU: Twenty feet Equivalent Unit

FEU: Forty feet Equivalent Unit

TPT: Transpacific Trade

AET: Asia Europe Trade

AUT: Australian Trade

IAT: Intra Asia Trade

TSA: Transpacific Stabilization Agreement

FEFC: Far East Freight Conference

AADA: Asia Australia Discussion Agreement

IADA: Intra Asia Discussion Agreement

WTO: World Trade Organization

ASEAN: Association of South East Asia Nation

NAFTA: North America Free Trade Area

APEC: Asia Pacific Economic Co-operation

SWOT: Strengths, Weaknesses, Opportunities, Threats

GDP: Gross Domestic Product

CHAPTER 1: INTRODUCTION

1.1 Introduction

The world’s markets nowadays have become increasingly “globalization” To a large extent, this reflects the fact that all countries are adjusting to strong trade exchange pressures These pressures are derived from international and regional trade agreements, such as the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA) There is also the development of other trading blocks like the European Union (EU), the Association of South East Asian Nations (ASEAN), the Asia Pacific Economic Co-operation (APEC), and the growth of Intra Asian Trade These trade policy initiatives have a common objective to open up new trading opportunities and integrate countries into global economy

The global economic integration relies upon efficiency and philosophy of logistics and supply chain management Shipping industry in general and containerized transportation

in particular plays a very important role in the logistics world It is indispensable in the supply chain management process With the long history of shipping industry, since 19thcentury for cargo and passenger transportation and then developed to containerized transportation in late 1950s, containerized transportation nowadays proves to be the most economic and safety transportation mode It now occupies more than 90% of total cargo volume transported worldwide1

1.2 Problem Statement

Nowadays, Vietnam becomes a manufacturing and processing place of many foreign companies due to low labor costs, natural resources and attractive investment environment Beside that, in the past ten years, Vietnam’s economy has achieved its vision of sustainable and high quality growth of GDP which is around 8% yearly These elements have raised the import – export demands in the country and this is resulted to fast growth of shipping industry in general and containerized transportation in particular Currently, most of the shipping lines have been present in Vietnam market, about 32

- Vietnam is a new and small market for containerized transportation, majority of Vietnamese exporters are selling under FOB basic which leave the shipping control to consignee side

- The government is still controlling on maritime transportation, so most of carriers operating under agent contract or joint venture, resulted to some self-constraints in carriers’ investment

With the prospect of joining WTO, Vietnam market will be fully open for all service industries including maritime service, carriers will invest heavily in Vietnam and the market supply will increase significantly over the demand Therefore, a specific marketing strategy of carrier for local Vietnam market is the vital need for carriers’ development

1.3 Rational of research

The research is to concentrate on analyzing marketing information and OOCL services details and then giving suggestion on marketing strategy for OOCL (Vietnam) Co., Ltd in Vietnam market

The objective of the research, first of all, is to put the knowledge acquired in school into

a business practice Specially, by applying the newest knowledge and methodology in services marketing, both in terms of strategy setting and working experience, the research aims at finding a proper marketing strategy for OOCL (Vietnam) Co., Ltd

The research is prepared for the company management to take into consideration the marketing mix to improve OOCL (Vietnam) position, achieving challenge target for OOCL (Vietnam)

- Secondary data obtained from company finance report and shipping line conferences were analyzed in order to have an overview of shipping industry worldwide and Vietnam in particular

- Primary data was collected from direct interview with customers and specialist in this field Running SPSS program to analyze the data Transfer the results into comment and conclusion of the correlation between factors

- SWOT analyses method

- Finally, based on all the results acquired from previous steps together with corporation overall strategy, an extended marketing mix for the company OOCL (Vietnam) Co., Ltd is recommended

1.5 The scope and limitation of research

1.5.1 Scope of study

The study focuses mainly on containerized transportation in Ho Chi Minh market Study

customers’ behaviors, expectation and demand on company’s services

Provide recommendations and solutions to assist with the company marketing strategy

and development orientation

Objectives of the study

OOCL Vietnam introduction and internal analysis, basing on secondary data reference Review of relevant Literature

Redefine corporate objectives

Marketing survey as primary data collection

Generating marketing strategy options Analysis of data findings (SPSS) and SWOT analysis

Business environment and external analysis, basing on

secondary data reference

Conclusion and recommendation

1.5.2 Limitation

The study just purely looks into containerized transportation (a factor among logistics and supply chain management) and the marketing strategy for OOCL (Vietnam) Co., Ltd It could not expound fully the role of containerized transportation in logistics management because of time limitation Beside that my knowledge is limited that may affect on result of study, therefore, the study would mention on some main aspects and routes of the carriers only, and it is synoptically However, the thesis is a cornerstone for

my further study in the field and I believe that my suggestions are useful for the company

in developing its presence in Vietnam market for the next 10 years

CHAPTER 2: LITERATURE REVIEW

2.1 Literature review on Services marketing and Management

be tied to a physical product”3

The modern definition recognizes that most products are a combination of both goods elements and services elements In some case, service element will be the essential element of the services while in other cases the services will simply support the provision

2.1.2 Characteristics of services

There are several characteristics that services different from goods Basically, there are at least such differences, as follow:

1 Customer does not want to obtain ownership of services

2 Service products are intangible performance

3 There is greater involvement of customers in the “production” process

4 Other people may be part of the product

5 There is greater variability in operational input and output

6 Many services are difficult for customers to evaluate

7 There is typically absence of inventories

8 The time factor is relatively more important

2 Valerie A Zeithaml and Mary Jo Bitner, “Services Marketing”, Mc Graw-Hill International; 5 th edition

3 Andrian Palmer, “Principles of services marketing”, McGraw-Hill International; 3 rd edition; 2001

4 James Brian Quinn, Jordan J Baruch and Penny Cushman Paquette “Technology in Services”, Scientific American No.257 on 6th December 1987; page 50-58

9 Delivery system may involve both electronic and physical channels5

More academically, but with similar meanings, services hold the six following features:

1 Intangibility – the invisibility of services This leads to the importance of materializing the services delivered, the difficulty in measuring their quality, the importance of managing customers’ expectation and perception and the difficulty in protecting innovations

2 Perish-ability, which means that services, unlike goods, cannot be kept in stock over time In other words, services are more sensitive than physical goods in demanding changes or variations

3 Transferability Ideas of operating a service can be copied from other different service

4 Heterogeneity in delivery and consumption This leads to the difficulty in managing and controlling the service quality, improving productivity, standardizing operations and thus, makes it often possible to tailor the services to customers’ specific needs

5 Simultaneity of production and consumption Therefore, services cannot be analyzed prior to purchase and require more direct customer-staff and customer-customer contacts Since customers must be involved in any work being performed, there are more constraints in scheduling, locating and planning the services

6 Cultural specificity It is more important for service operators than manufacturers

to take into account the cultural context of the business In other words, it is accepted that service is more culture-sensitive than any other sectors ever realized and studied.6

2.1.3 Classification of the Services7

The service sector or the service industry, is one of the three main industrial categories of

a developed economy, the others being the secondary industry (manufacturing and primary goods production such as agriculture), and primary industry (extraction such as mining and fishing)

The tertiary sector of industry involves the provision of services to other businesses as well as final consumers Services may involve the transport, distribution and sale of goods from producer to a consumer as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment The goods may be transformed in the process of providing the service, as happens in the restaurant industry However the focus is on people interacting with people and serving the customer rather than transforming physical goods For the last 20 years there has been a substantial shift from the other two industry sectors to the Tertiary Sector in industrialised countries

The service sector consists of the "soft" parts of the economy such as insurance, tourism, banking, retail and education Others include:

• Consulting, Investment and Legal advice and services

2.1.4 What is Services Marketing

Services marketing is marketing based on relationship and value It may be used to

market a service or a product

Marketing a service-base business is different from marketing a product-base business There are several major differences, including:

1 The buyer purchases an intangible

2 The service may be based on the reputation of a single person

3 It's more difficult to compare the quality of similar services

4 The buyer cannot return the service

5 Service Marketing mix adds 3 more P's i.e People, Physical evidence, Process When one markets a service business, one must keep in mind that reputation, value, delivery of service and follow-through are keys to a successful venture.8

2.2 Literature review on shipping service and transportation marketing

2.2.1 Definition of shipping service and containerized transportation9

Shipping is basic process of transporting goods and cargo Virtually every product ever made, bought, or sold has been affected by shipping Despite the many variables in shipped products and locations, there are only three basic types of shipments: land, air, and sea

In this thesis, we will focus on shipping as sea transportation, the most popular form of shipping Most cargo transport is by sea rather than by air transport because sea transport

8 Levitt, T "Managing intangible products and product intangibles", Harvard Business Review, May-June,

1981, pp.94-102

9 Marc Levinson, The Box, How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton Univ Press 2006)

can be cheaper and less restrictive to size, quantity, weight, and type of freight Air transport is usually reserved for products which must be sent within a certain time frame Containerization is an important element of the logistics revolution that changed freight handling in the 20th century Malcolm McLean claimed to have invented the shipping container in the 1930s in New Jersey Then a truck owner-operator, McLean explained that while sitting at a dock waiting for cotton bales to be unloaded from his truck then reloaded onto a ship, he realized that the truck itself (with some minor modifications) could be transferred much more efficiently Years later, McLean founded Sea-Land Corporation, and his first container ship left Port Newark for Houston, Texas on April 26,

1956, carrying 58 trailers

Containerization revolutionized cargo shipping Today, approximately 90% of cargo moves by containers stacked on transport ships As of 2005 some 18 million containers make over 200 million trips per year, there are ships that can carry over 6,000 TEU, and designers are working on freighters capable of 13,000 TEU It has even been predicted that at some point, container ships will be constrained in size only by the Straits of Malacca, one of the world's busiest shipping lanes

2.2.2 What is transportation marketing

Transportation marketing10 is an effective marketing tool to manage the industry and to solve the following issues:

- To study the overall market of the transportation services

- To identify the need of quality and quantity of the transportation

- To give the transportation plan

- To identify the satisfaction of the transportation needs

- To impact actively on the transportation market to increase the need

- To analyze the activities of each means of transportation

- To identify the transportation cost, freight, service charges and to set the revenue and the profit for each enterprise

- To enhance the service quality, to improve the relationship between the enterprises and clients

- To develop the advertising and promotion in the transportation industry

2.3 Literature review on Marketing strategy and Marketing Mix

2.3.1 Marketing strategy

Marketing strategy11 is marketing starts with market research, in which needs and

A marketing strategy12 serves as the foundation of a marketing plan A marketing plan contains a list of specific actions required to successfully implement a specific marketing strategy An example of marketing strategy is as follows: "Use a low cost product to attract consumers Once our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product

or service."

A good marketing strategy should integrate an organization's marketing goals, policies, and action sequences (tactics) into a cohesive whole The objective of a marketing strategy is to provide a foundation from which a tactical plan is developed This allows the organization to carry out its mission effectively and efficiently

2.3.2 Developing marketing strategy

Developing a marketing strategy involves two related tasks, selecting a target market in which the company operates and developing marketing mix in each target When you target a market you need to develop a differentiation and position strategy for that market Once the company decides its product positioning, it must initiate new-product development, testing and launching Different decision tools and controls are needed at each sate of the new-product-development process After launch, the new product strategy will have to be modified at different stages in the product life cycle which are introduction, growth, maturity and decline Furthermore, strategy choice will depend on whether the firm plays the role of a market leader, challenger, follower, or niches Finally, strategy takes into account in changing global opportunities and challenges There are six major factors that should be identified in determining which strategy might

be more appropriate13

- The size of the market If the market or market segment served is already small, further segmentation through a market segmentation strategy may reduce the potential number of customers to a degree that a market segmentation strategy is unattractive

- Consumer sensitivity For very basic necessities or services, consumers maybe insensitive to product differences For the more elastic products, the level of sensitivity is high making product differentiation strategy appropriate

- Product life cycle Goods or services in different phases of the life cycle may find one strategy more successful than the other

- Type of product As mentioned previously, it is nearly impossible to implement product differentiation strategy for some kinds of basically alike products where differentiation is difficult to be created and communicated or undesirable

- Number of competitors When there are a large number of competitors in the market, it is much more difficult to differentiate a product Thus, a large number of competitors calls for a market segmentation strategy

12 Kotler, P and Amstrong, G., 1999, “Priciples of Marketing”, 8th edition, Prentice-Hall

13 Lovelock, C.H and Wright, L.K., “ Principles of Service Marketing and Management”, Prentice Hall,

1999

- Competitors’ strategies When there are many competitors that are using market segmentation strategy, it is advised that marketer choose market segmentation strategy in which a particular market segment is picked up and resources concentrated

2.3.3 Targeting a market

A target market consists of a group of customers In targeting a consumer market, the company needs to segment the market first There are two bases of segmenting consumer markets, consumer characteristics and consumer responses These market segments should be measurable, substantial, accessible, differentiable and actionable Once the company has identified its market-segment opportunities clearly, it must evaluate various segments and decide how many and which ones to target

2.3.4 Strategic Marketing with marketing mix

Marketing mix includes 4Ps standing for Product, Price, Promotion and Place This 4Ps is very familiar to any marketer when it’s application is very popular Apart from the four above items, there are also other elements: People, Physical Evidence, Process and Customer Service The market mix expansion14 is as follows:

- Products are the means by which organizations seek to satisfy consumer needs A product in this sense is anything which the organization offers to potential customers whether it is tangible or intangible The concerns of this part are physical features, quality level, accessories, packaging, warranties, production lines and brandy

- Pricing, Price mix decisions include strategic and tactical decisions about the average level of prices to be charged, discount structures, term of payment and the extent

to which prices discrimination between different groups Flexibility, price level, terms, differentiation, discount and allowances would be the main factors of price mix

- Promotion, promotion mix includes various methods of communicating the benefits

of a service to potential consumers Four elements of this are advertising (target, media types and copy thrust), sales promotion, public relations and personal selling (selection, training and incentives)

- Place, place decisions refer to the channel types, exposures, intermediaries, outlet location, transportation, storage and managing channel It can be physical location decisions, decisions about which intermediaries to use in making a service accessible to a consumer and non-location decisions which are used to make services available

- People, people are the vital element for most services in the marketing mix When production can be separates from the consumption, management can usually take measures to reduce the direct effect of people on the final output as received by customers

- Physical evidence, the intangible nature of a service means that potential customers are unable to judge a service before it is consumed, increasing the risk inherent in a

- Customer service, the meaning of customer service varies from one organization to another Within the service sector, it can be best described as the total quality of the services

2.3.5 Logical steps in strategic marketing planning

There are many models of the formal process, but most are based on the three-phase structure articulated by Johnson and Scholes15

- Where are we now? – The situation analysis, out of which alternatives become more obvious In the context of marketing planning this includes an external and internal audit

- Where do we want to go? – Formulating objectives relating to the strategy hierarchy, resulting in a hierarchy of objectives

- How are we going to get there ? – Deciding the vehicle of strategy, this normally includes the product/ market mix

According to Stern16, a strategic marketing planning should include the following steps:

- To determine company mission and goals followed by setting marketing objectives

- To access market opportunities and state assumption The inputs for the process include social, technological, governmental, business and other environments

- To generate strategies In this step, several alternative strategies are introduced for further consideration

- To select the best strategies This involves much of management decision

- To program marketing mix

- To detail the plan

- To revise and have the plan approved

- To communicate of the plan and implement it

- To audit and adjust where necessary

Stern suggests that the strategic marketing planning model should not be implemented in a one-way approach Where and when possible and necessary, certain review and adjustment should be taken

15 Johnson and Scholes, Strategic Marketing: Cases, Concepts and Challenges, 1998, Prentice Hall

16 Stern, M.E., 1996, marketing Planing: A System Approach, Mc Graw Hill

17 http://wikipedia.org/wiki/SWOT_analysis

terms have been used in the literature: desired end states, plans, policies, goals, objectives, strategies, tactics and actions Definitions vary, overlap and fail to achieve clarity The following concept has been found useful The items listed above may be organized in a hierarchy of means and ends and numbered as follows: Top Rank Objective (TRO), Second Rank Objective, Third Rank Objective, etc From any rank, the objective in a lower rank answers to the question "How?" and the objective in a higher rank answers to the question "Why?" The exception is the Top Rank Objective (TRO): there is no answer to the "Why?" question That is how the TRO is defined Once the objective has been identified, SWOTs are discovered and listed SWOTs are defined precisely as follows:

Strengths are attributes of the organization that are helpful to the achievement of the objective

Weaknesses are attributes of the organization that are harmful to the achievement of the objective

Opportunities are external conditions that are helpful to the achievement of the objective Threats are external conditions that are harmful to the achievement of the objective

Strengths and Weaknesses factors:

• Resources: financial, intellectual, location

• Distribution Channels and Hours of operations

• After sales service and Sales promotion techniques

• Transportation and Delivery time

• Diversified fields, Product line and multiple services/offers (Technical, Commercial, Designing & Turnkey Projects etc )

Opportunities and Threats factors:

CHAPTER 3: OVERVIEW OF CURRENT SHIPPING MARKET AND MARKETING STRATEGY FOR OOCL (VIETNAM) CO., LTD

3.1 World shipping service highlights

In the past ten years, containerized transportation keeps increasing on both scale and quantity due to the increase in trade exchange from Far East and the non-stop competitive

on market share among carriers18

According to BRS-Alphaliner data, a sea transport broker located in Paris, between January 2000 and January 2006, the TEU (Twenty feet Equivalent Unit) capacity deployed on liner trades has risen from 5,150,000 TEU to 9,135,000 TEU, i.e a 77.4% increase It means that in order to simply keep their market shares during that period, carriers had to increase their fleet capacities by 77.4% Those which failed to invest, or charter, enough to keep the pace have lost market share

The accompanying graph shows the performances of a selection of carriers among the TOP 30 lines It is based on the ratio between market shares at 1st January 2000 and 1st January 2006 For example, CSCL market share rose from 1.67% to 3.80%, i.e an increase of 126%

Market shares are deducted from the existing on board TEU (Twenty feet Equivalent Unit) capacities of carriers, compared with the total capacity effectively deployed on liner trades (these figures take into account cellular ships, multipurpose ships and roro ships which are effectively employed on regular liner services, and they do not include ships which are not operated on liner trades, even if TEU fitted) The total market capacity and the carriers’ market shares are computed daily by BRS-Alphaliner and can

be consulted in our TOP 100 page The three rising stars of this decade so far are CMA CGM, CSCL and Hapag-Lloyd

CMA CGM logged a market share rise of 133%, with its share climbing from 2.4% to 5.6% during the past 6 years Organic growth counts for more than 80% of this figure while the 2005 purchase of Delmas contributes to less than 20% At the same time, CSCL has more than doubled its market share from 1.7% to 3.8%, only through organic growth As for Hapag-Lloyd, its market share grew from 2.0% to 4.5% The 2005 purchase of CP Ships counts for around three quarters of this growth Without the CP Ships contribution, Hapag-Lloyd would have seen its market share growing from 2.0% to 2.5%

MSC comes at the fourth place with a share which has almost doubled as it rose from 4.4% to 8.6% During the period 2000-2006, MSC has climbed from the fifth rank to the second rank in the TOP carriers’ league, with a trebling in fleet capacity

Next comes the CSAV Group, with a share which has risen from 1.4% to 2.6%, partly thanks to the purchase of Norasia in 2000 and the Norsul liner services in 2002, and partly to organic growth

18 http://alphaliner.com/brs-alpha

Although it remains at the top slot in terms of fleet capacity, the AP Möller-Maersk Group comes at the eighth position for market share growth, a rank achieved thanks to the 2005 purchase of Royal P&O Nedlloyd which allowed it to boost its market share from 12.5% to 18% overnight, corresponding to an increase of 51% compared with January 2000 Prior to the PONL purchase, the Maersk market share had been stagnating

at around 12% since January 2000 (and incidentally, the PONL market share was stagnating as well) Despite this huge jump, it’s still lagging behind MSC, its closest rival

in fleet capacity terms Maersk is by far the largest carrier with a fleet reaching 1.66 million TEU, almost twice the size of MSC

Some carriers with a strong regional bias are also doing well, although for them, the concept of global market share is of low significance IRIS Lines, Hamburg-Süd Group and PIL have gained significant market shares in global terms, which also means that their regional market shares has grown still stronger

Hongkong based carrier Orient Overseas Container Line (OOCL) increase 4 rank from

16th to 12th with market share increase 13% compared to January 2005 OOCL choose the strategy of “organic growth” within their internal capacity, not impacting by the trend of merging of other giant carriers

Two carriers heavily involved in feeder trades have also kept well the pace, RCL and Sea Consortium They managed to increase their market share by 4% and 10% respectively (although for RCL, its efforts to develop its own common carrier services have also helped)

Japanese lines NYK, MOL and K Line have managed to maintain more or less their shares, and are no longer as expansive as they used to be

Those who win market share get it of course at the expense of rivals For example, the Evergreen Group saw its market share diminished by 15%, down from 6.2% to 5.2% Evergreen was ranked in second position in 2000 with a fleet of 318,000 TEU It has since been relegated to the fourth slot despite a growth to 478,000 TEU

COSCO Container Lines has seen its share decrease by nine points since 2000 but is now strongly reacting and this slide has come to a halt over the past 18 months It is now on the rising slope again, an interesting trend as it has been listed on the HKSE in June

2005

Korean carriers Hanjin Shipping (including Senator Linie) and Hyundai Merchant Marine have suffered of the post-1997 financial crisis They were at the time the shipping divisions of heavily indebted chaebols, which had to slash expenses The result is that new building programs have been minimal They are at least still there, which is not the

growth” within their internal capacity, not impacting by the trend of merging of other giant carriers

A few regional players have also loosed grip UASC and MISC have each one lost 45%

in relative importance UASC did not invest, and it has waited March 2005 to launch a construction program for eight ships of 6,800 TEU MISC has put the emphasis on energy transportation and has not received a single containership since the late 1990s, and its order book is limited to 16,000 TEU Africa specialist Delmas has seen its market share dropping by 40% during the 5.5 years preceding its purchase by CMA CGM Delmas has been hit by the low growth characterizing Africa and by a lack of interest by parent company Bolloré

Among smaller carriers, Costa Container Lines built-up a consistent market share on American trades, boosting its overall presence from insignificant to 0.4% while the China Navigation Co (Swire Group) strengthened its presence on the South Pacific markets On their side, Chinese regional carriers SYMS and SITC have made their place SYMS has even entered the TOP 30 in December with its fleet passing the 32,000 TEU mark SYMS launched its first international services in 1999

It is also interesting to see the pace at which the concentration is going The Top 10 carriers had a combined market share of 49.3% in January 2000 It now stands at 60% (The Top 10 fleet has more than doubled, from 2.54 million TEU to 5.48 million TEU) Their combined market share has thus risen by 21.7% At the other end of the scale, the fleets of carriers ranked 51 to 100 has stagnated at just under 400,000 TEU, with a resulting loss of almost 45% in market share (from 7.7% in 2000 to 4.3% in 2006)

Table 1 - Evolution of carriers operated fleet and market share year 2000 - 2006

3.2 Vietnam Economy Review

3.2.1 Gross Domestic Product (GDP)

The annual GDP growth is contributed from the development of many field And it definitely & correlatively create the demand of transportation & logistic services since it

is a indispensable trade mean of voluntary exchange of goods, services, assets or money between person or organization

Vietnam economy, with steady & sustainable growth of GDP 2000 - 2005 range from 6.79% to 8.4%, has gained the second highest economic growth in Asia after China together with the government target GDP growth 2006 at 8.00 % It is stated & forecasted this economic growth momentum will maintain 7.0%-8.0% annually to keep pace with government’s five year plan 2006- 2010 Most likely the economy growth is achievable and sustainable And a very dialectical reasoning will pull the growth & the demand of transportation & logistic services as well as reflect the grow-up of the shipping industry

Table 2 - GDP growth by year

Source: Vietnam Economic Times

Figure 1 - GPD growth year 2000 to year 2005

0 5

3.2.2 Foreign Direct Investment

Vietnam is highly appreciated in attracting foreign direct investment (FDI) capital, it has yet to rank top 11 countries in Asia that attract most FDI in 20005, according to the Global Development Finance 2006 report of the World Bank (WB)

Up to 20 Dec 2005, FDI inflow is about total 5918 project, bringing the total FDI figure

$50.535 Billion

The year 2005, FDI appealed for more than $5.8 Billion registered capital, grow more

than 25% compared Y2004, exceed nearly 30% initial target $4.5 Billion This

considerably contributes to the national achievement of economy & society with the

remarkable growth GDP nearly 8.5%, the highest one within 5 years

Table 3 - Foreign Direct Investment by country & counted up to 20 December 2005

Source: Vietnam Bussiness News – May 2006

Figure 2 - Top Ten Foreign Direct Investment countries with associated value

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00

Taiwan

Hon

gkong

B.V I

ands

Fren

ch H

3.2.3 Overview on Vietnam Import Export activities

There is a spectacular growth in export, the turnover $32,233 million, gain the highest level up to date And it is averagely $2.69 per month, higher than the whole year turn over of 1992 backward Average per capita is $388, higher 12.5 times compared with

1991, even far above $323.1 of 2004

The ratio between Export and GDP reach above 60% prove the opening of the economy, likely suitable for the oriented Export development The growth rate is 21.6% both exceed the target growth 16% and GDP growth 2.6 times It is remarked that is quite high compared with previous years

Aside from above, Vietnam has officially signed a bilateral agreement with the US on Vietnam’s accession to the WTO, it’ll mean the WTO’s door has been wide opened the vission and roadmap for foreign companies’ investment, more large multinational are starting to pay attention to Vietnam This created a great chance for Import Export market, and of course transportation will be one of correlative factor which is important

to this course

By export market, most of market increase, particularly core market Asia account for more than a half $16,3 billion versus total market $32.23 billion, grow 22%, in which South East Asia is $5.5 billion, grow 40% America is $6.8 billion, grow 19% Europe is just 7% growth mainly due to Footwear and Bicycle which is being imposed anti dumping tax

By commodity, among 25 core commodities, there is 21 commodities grow compared with last year, such as Rice 47.3%; Plastic product 34.2%, Computer, Electrical & components 34.1%, Wood product 33.2 % Some others is facing with lawsuit due to anti dumping, quota, food quality However, it still increase as Seafood 14.2%, Footwear 11.7%, Textile and Garment 9.6% Below figure is for further information

Table 4 - Top Commodities Import Y2005 with associated value

Figure 3 - Top Commodities Import Y2005 with associated value

equ

ipment

Textile, g

arme

nt ma

terials

Mo

torbik

Table 5 - Top Commodities Export Y2005 with associated value

10 Computer, Electrical & components 1,427,379

Source: Vietnam Bussiness News – May 2006

Figure 4 - Top Commodities Export Y2005 with associated value

Woo

d

oduct

Com

pute

Electrica

l & co

mpo

nentsValue

Table 6 - Top countries import from 2000 to 2005 with associated value

Figure 5 - Top countries import from 2000 to 2005 with associated value

Taiw

an Ja

n

Korea

000102030405

Table 7 - Top countries export from 2000 to 2005 with associated value

Source: Vietnam Bussiness News – May 2006

From above, we can see that the US is the biggest export market of Vietnam The increase is very fast, from number 6 in year 2000 with value 732 million US dollars comes upto 5,930 million in year 2005, more than eight times in five years This is obviously the most promising market for Vietnam in term of increase level

Figure 6 - Top countries export from 2000 to 2005 with associated value

Austra

Phili

ppines

000102030405

The above economy factors analysis will give us a better outlook for Vietnam economy and its pomising prospect in next few years This has the positive impact on container transportation market We will see in next part the introduction of OOCL and the containerized market of Vietnam

3.3 Introduction of OOCL group and OOCL (Vietnam)

Orient Overseas Container Line (OOCL) is a wholly owned subsidiary of Orient Overseas (International) Limited (OOIL), a public company (0316) listed on the Hong Kong Stock Exchange OOCL is one of the world's largest international container transportation, and is one of Hong Kong's most recognized global brands, providing customers the containerized transportation services, with a network encompassing Asia, Europe, North America and Australia

OOCL is well respected in the industry with a reputation for providing customer-focused solutions, a quality through excellence approach and continual innovation OOCL pioneered transportation coverage of China and is an industry leader in information technology19

The founder of OOCL, the late C Y Tung, dreamed of creating the first international Chinese merchant fleet In 1947, he achieved that dream when the first ship with an all-Chinese crew reached the Atlantic coast and Europe Regular cargo and passenger services were subsequently developed under the name of Orient Overseas Line

When containerization began in 1969, the company was re-named Orient Overseas Container Line In those days, Victory class vessels could carry 300 Twenty-Foot Equivalent Unit (TEU), a far cry from today's post-Panamax vessels that ply the world's oceans And with the delivery of two mega vessels by the second quarter of 2003, the largest throughput of OOCL's container vessels will increase to 7,700 TEU

19 http://www.oocl.com

On the death of his father in 1982, C H Tung assumed the leadership of Orient Overseas (International) Limited (OOIL), OOCL's parent company for 14 years C C Tung took over at the helm from his brother in 1996 on C H Tung's election as Chief Executive of the Hong Kong Special Administrative Region

Today, OOCL is one of the world's leading container transport and logistics service providers, with 160 offices in 50 countries, employing over 4,000 staff globally

OOCL offers customers comprehensive coverage of east-west trade corridors, with some

of the fastest transit times in the industry Regular services connect Asia, North America, Europe, the Mediterranean, the Indian sub-continent and the Middle East Regular loops

to Australia and New Zealand complete coverage in Asia-Pacific

OOCL is also a member of the Grand Alliance that has over 100 vessels providing fast, regular services covering the Asia/Europe, Asia/Mediterranean and Asia/North America trades

OOCL's extensive coverage of Asian ports is unmatched and OOCL is renowned for being the leading container transport and logistics service provider for China

Following the “doi moi” policy of Vietnam, OOCL established its Vietnam office in

1994 under the agency agreement with Gemartrans (Asia) Co., Ltd, a local maritime company In May 2004, OOCL came into joint venture agreement with Gemadept and set

up OOCL (Vietnam) Co., Ltd acting as agent for OOCL worldwide OOCL (Vietnam) today is called as Regional Office, providing global service network and an integrated information technology system to ensure that an uniform high quality service level was offered to customers Although the scale is still relatively small (50 staff), OOCL (Vietnam) has full function of services providers, including 7 departments

Figure 7 - Organization chart of OOCL (Vietnam)

OOCL services :

OOCL currently serves 6 main trades:

Trans-Pacific Trade (TPT), serving from Asia to North America and vice versa

ACCOUNTING

BUSINESS PROCESS SYSTEM Dept.

HUMAN RESOURCES &

AMINITRASIO SAL &

MARKETING

OOCL LOGISTIC

Intra-Europe Trade (IET): serving to and from within European countries

OOCL services from Vietnam origin:

From Vietnam market, the company is serving in 4 trades: TPT, AET, IAT and AUT both inbound and outbound

Figure 8 - Service coverage of OOCL (Vietnam)

3.4 Overview of Vietnam’s current shipping market and OOCL position

3.4.1 Overview of Vietnam containerized market

In Vietnam, most of the big players in the above top 30 carriers have been present in this market They are divided into different trade lanes basing on destinations:

- TPT - Transpacific Trade, cover the route from Asia to North America

- AET - Asia Europe Trade, cover the route from Asia to Europe

- IAT - Intra Asia Trade, cover the route within Asia

- AUT - Australian Trade, cover the route from Asia to Australia

We have a look at the market segmentation by destinations in year 2005:

North America

AsiaEurope

Australia

New Zealand Canada

Asia-North America

Asia-Europe

̇Vietnam

Table 8 - Vietnam overall market volume and OOCL volume year 2005

Destinations

Y2005 Lifting (TEU)

AUT and others: Estimate

IAT: IADA statistics

OVCL : OOCL Finance report

Figure 9 - Total Vietnam volume year 2005

Total Vietnam volume Y2005

North America

Europe Australia

Others Intra Asia

Australia market, OOCL (Vietnam) get 12.9% market share We will go into details of each Trade in the next parts

3.4.2 Transpacific Trade (TPT)

This trade lane covers the big market of USA and Canada

Currently, there are about 20 carriers operating in this traffic, 14 carriers in the TSA (Transpacific Stabilization Agreement) conference and 6 are not in this conference TSA (Transpacific Stabilization Agreement) is a voluntary discussion and research forum

of 14 major container shipping lines serving the trade from/to ports and inland points in the U.S to destinations throughout Asia

Members include:

American President Lines, Ltd

CMA-CGM

COSCO Container Lines, Ltd

Evergreen Marine Corp (Taiwan), Ltd

Hanjin Shipping Co., Ltd

Hapag Lloyd Container Linie

Hyundai Merchant Marine Co., Ltd

Kawasaki Kisen Kaisha, Ltd (K Line)

Mitsui O.S.K Lines, Ltd

Nippon Yusen Kaisha (N.Y.K Line)

Orient Overseas Container Line, Inc

P&O Nedlloyd Ltd./B.V (*)

Yangming Marine Transport Corp

In year 2004 Maersk Sealand has withdrawn from this conference, China Shipping joined

in at the same year In June 2005, Maersk Sealand bought P&O and rename the whole group as Maersk

In this trade lane, the market share for each carriers in the last two years are as follows:

Table 9 - Carriers volume and relative market share ex Vietnam to the United State,

year 2005 vs year 2004

RANK CARRIER

Volume in teu

Market share (%)

Volume in teu

Market share (%)

6 CSCO – CHINA OCEAN SHIPPING 12,403 5.31% 4,245 2.43%

7 PONL - P&O NEDLLOYD 10,871 4.65% 11,870 6.80%

8 YMAL – YANG MING LINE 9,877 4.23% 6,361 3.64%

9 HYMM – HYUNDAI 9,593 4.11% 7,299 4.18%

10 OSKL – MOL 8,991 3.85% 5,309 3.04%

11 EVER - EVERGREEN LINE 8,952 3.83% 8,009 4.59%

12 HAPL - HAPAG LLOYD 6,091 2.61% 4,982 2.85%

13 CSCN - CHINA SHPG CONTAINER LINE 5,400 2.31% 2,276 1.30%

Source : Journal of Commerce, issued by US Customs Office

The above figures are not calculated the Canada portion, which is estimated about 20%

of USA volume

From above statistic, we can see MAERSK is the top carrier with 18.93% market share,

follow-up by APL, HJN, NYK with 11.4%, 8.82% and 6.78% respectively

OOCL stand at position number five with 5.83% Our threat is Cosco who has significant

improvement from 2.43% in year 2004, jump to 5.31% in year 2005

We next look at top commodities export from HCM to the US market in June ~

December 2005 vs June ~ December 2004 in attached table 4

Table 10 - Top commodities of market vs OOCL share in first half 2005 vs first half 2006

Market OOCL lifting Market OOCL lifting 2005 vs 2004' base

Commodity Rank

Lifting

% to total Lifting

% share Lifting

% to total Lifting

GENERAL CARGO,MISC 1,299 1.23 7 0.50 1,358 1.75 10 0.74 -4.32 -34.80

BAGS & BAGGINS 1,104 1.05 174 15.77 807 1.04 59 7.31 36.79 195.08

EDP, NUMBER, ADDRESS MACHINERY 786 0.74 0 0.03 89 0.11 0 0.36 782.72 Nil

PLANTERS 782 0.74 112 14.37 1,024 1.32 40 3.91 -23.64 180.85 LEATHER PRODS 857 0.81 105 12.25 793 1.02 184 23.20 8.10 -42.91

SHEETS,TOWELS,BLANKETS 719 0.68 47 6.60 709 0.91 71 10.01 1.39 -33.17

CORK & BAMBOO PRODS 575 0.54 7 1.15 436 0.56 3 0.69 31.92 120.67

FABRICS, INCL.RAW COTTON 508 0.48 25 4.98 709 0.91 116 16.36 -28.40 -78.21

From the table, we can clearly identify Furniture having the biggest volume exporting to the US market with 39.5% of total market volume The growth is also very impressive at 115.2% increase over the same period of previous year

OOCL have 4.93% market share in Furniture commodity, a bit lower than average share

at 5.83%

Garment, Footwear and Ceramics are the next commodities with volume share at 22.05%, 8.18% and 3.47% respectively OOCL share is OK for the Garment and Ceramics (5.47% and 6.99%) while is low in Footwear with just 1.05%

For Frozen Seafood (mostly CNF term and shipper will nominate the carrier), OOCL is the leading carrier with 26.47% market share

3.4.3 Asia Europe Trade (AET)

This trade cover the traffic from Vietnam to Europe

Currently there are about 20 carriers operating in this trade lane, the biggest conference is FEFC (Far East Freight Conference), occupies 70% of total market volume

FEFC include 13 members:

- ANL Container Line Pty Limited

- American President Lines, Ltd

- CMA-CGM

- Hapag Lloyd Container Line

- Hyundai Merchant Marine Co., Ltd

- Kawasaki Kisen Kaisha, Ltd (K Line)

- Malaysia International Shipping Corporation (MISC)

- Mitsui O.S.K Lines, Ltd

- Maersk

- Norasia

- Nippon Yusen Kaisha (N.Y.K Line)

- Orient Overseas Container Line, Inc

- Yangming Marine Transport Corp

Non-FEFC members have: HJN (Hanjin), China Shipping, Cosco, ZIM, Loyd Triestino, Wanhai

We will have a look at FEFC members’ market volume and share in Y2005 in the tables

5 and 6

able 11 - Y2005 Vietnam market volume of FEFC members to Eastern Europe (TEU)

GERMA

NY

NETHERL ANDS

PORTU GAL NWC

RUSSIA SPAIN

NWC

SWITZER LAND NWC

UK/EIR

APL 304 1,958 240 2,424 2,271 5,833 5,901 18 162 16 84 4,171 23,382 11.5% CMA 1,142 1,245 159 2,650 3,454 4,216 2,414 57 547 368 95 1,873 18,220 9.0% HLL 1,033 1,882 382 2,543 675 6,126 2,625 0 44 211 695 4,202 20,418 10.0% HMM 2 364 0 413 201 1,335 702 40 114 58 2 874 4,105 2.0% KKK 559 1,592 38 1,259 632 941 1,310 97 5 62 67 1,414 7,976 3.9% MIS 41 46 0 605 429 1,099 603 105 174 55 0 468 3,625 1.8% MOL 93 590 2 1,068 1,588 4,904 3,413 79 132 21 0 2,866 14,756 7.3% MSK 1,444 4,994 217 6,505 2,294 8,934 5,225 0 692 6 29 14,480 44,820 22.0% NOR 44 366 3 681 353 2,419 1,164 8 258 0 0 569 5,865 2.9% NYK 60 966 72 3,263 870 6,121 3,159 104 6 2 8 4,831 19,462 9.6% OCL 14 189 149 967 658 1,847 734 107 1,356 27 1 1,496 7,545 3.7% PON 579 3,479 39 1,714 1,033 8,717 4,128 2 80 89 0 6,365 26,225 12.9% YML 199 353 138 515 407 1,728 1,572 20 350 118 0 1,295 6,695 3.3%

Table 12 - Y2005 Vietnam market volume of FEFC members to Mediterranean area (TEU)

SPAIN MED

SWITZERLAND MED

WEST MED

NORTH AFRICA

They divide the destinations into two big areas: North Europe (occupies 83% of market volume) and Mediterranean area (occupies 17% volume)

Maersk is still the number one carrier in this trade lane with overall 24% market share for both areas

OOCL is just active in North Europe market with 3.7%, positioning at number 9 out of

13 members, a very humble position

So this is the area that OOCL have more room for improvement

3.4.4 Intra Asia Trade (IAT)

Intra Asia is the biggest carriers’ forum with 32 members In this corridor, we have IADA conference include all the operating members

Below is the Vietnam volume in comparison with other Asian countries, attach in the table 7

In this trade lane, there is no figure of market share for each carrier as the IADA have no information of which portion is the IAT cargo, which is the transit cargo

Table 13 - Year 2005 IADA member lifting from Vietnam January 2005 to December 2005 - IADA Cargo Loading Report (in TEU)