strategies in shipping industry a review of “strategic ... strategies shipping.pdf · data...

2014

Octave Niamié (PhD. Student) and

Olivier Germain (Professor)

ESG - UQAM

01/06/2014

Strategies in Shipping Industry

A Review of “Strategic Management” Papers in Academic Journals

Projet de recherche

« opPORTunité »

Soutenu et financé par :

Strategies in Shipping Industry 2014

Strategies in Shipping Industry : A Review of “Strategic Management” Papers in Academic Journals

Introduction

Shipping is considered as the lifeblood of the global economy. More than 80% of the world

goods are carried by ship (Mason and Nair, 2013, Sui and Lam, 2011), and the USA, the largest

trading nation in the world, use sea cargo to move more than 90% of its export freight (Agarwal

and Ergun, 2008)

The global economic activities are changing and shipping industry is facing some

structural changes. There is a dramatic shift in the world manufacturing and trading. The market

and marketplaces are now global and production is located everywhere. China is the world

manufacturer; India and other Asian countries are following the same economic model.

(Panayides and Wiedmer, 2011).

The major shipping lines who were initially concentrated on the East – West routes which

linked the main three poles of the global economy (Europe, Asia, USA), are now serving the

North – South routes with the maritime liberalization. As they started newest and largest ships on

East – West routes, they shifted the oldest resources to the North – South markets. This new

design of the world trade makes mandatory the need for a fully connected and highly integrated

system (Robinson R., 2005; Fremont A., 2007). Mega carriers with multi-ocean networks are

being the pattern (Lorange and Fjeldstad, 2010).

The shipping business environment is getting more instable, competition is increasing

(Tongzon et al., 2009), profit margins are decreasing, expected service quality is increasing and

demand is becoming more uncertain (Panayides and Wiedmer, 2011, Robinson R., 2005).

In this context, shipping lines need to formulate and implement winning strategies to

secure revenue, margin and growth. And one may consider that strategic management scholars

would hold a competitive advantage in order to address some very inspiring research avenues.

From our review, there is a scarcity of literature review on strategy formulation and

implementation in shipping industry. There is also a scarcity of work from management and

strategy field about strategy in shipping industry. The works available are mostly from scholars

from fields like Transportation, Marketing, Supply Chain, Economics or History. In this study,



we point out that even articles dedicated to strategic management are rarely published in…

journals from the strategy field but in some peripheral ones.

Why so little interest in this yet stimulating topic from the strategic management

community? At first, one may consider that scholars in the field of strategic management are

much more interested in iconic cases from consumer goods or services industries. Companies

from shipping industry are some discrete or secrete businesses not really present neither in

popular medias nor in everyday life of people. Secondly, the shipping industry may suffer from

an “old-school” and mature image that is: an industry with high capital intensity, oligopolistic

conditions and less degree of innovation, etc. Thus, scholars would find more red oceans than

“blue” ones (Kim and Mauborgne, 2004) and less disruptive or idiosyncratic strategies; though

those industries are much more conducive to strategic breakthrough, even from insiders (Baden-

Fuller and Stopford, 1996). Finally, it is probably one of the main arguments; the shipping

industry may display high barriers to entry for researchers; or it-it the view from scholars? One

the one hand, companies share some cultural codes and assumptions which are so complex to

domesticate from outsiders and, on the other hand, only top managers are concerned with “big

questions” in very vertical organizations and plan firms strategic behaviors.

This paper aims to bridge these gaps by providing a literature review on strategies in

shipping industry, with a strategic management lens. In this study, we focus on articles edited in

academic peer-reviewed journals. One may consider that some interesting papers may be

published in handbooks or conference proceedings. We thought that academic journals are to be

the main locus of conversation between researchers and thus express a kind of institutional view

of the extent to which the strategy field addresses strategic issues in the shipping industry.

In the sections that follow, we will describe the methodology we use for our literature

review. We will picture the main strategies used in the shipping industry as reported in this

literature. We will then describe the main underlying theories used as basis for studying strategy

formation and the methodology adopted by scholars. We will close this paper by a discussion

section on some avenues.



Methodology

After setting the conceptual boundaries, we will discuss how we collected our data, the analysis

we made from it and the results.

Conceptual boundaries

Shipping refers to moving freight from a point A to a point B (Jari et al., 2008). It may be done

by air, by road or by sea. Our work will focus on moving freight by sea.

According to Agarwal and Ergun (2008), the shipping industry is made of three main

divisions: industrial shipping, tramp shipping and liner shipping. Industrial shipping refers to the

case where the shipper owns the ship and aims to minimize shipping cost. In tramp shipping

activities, the carrier engage in contracts with the shippers to carry cargo bulk between specific

points at specific time frame. Liner shipping is the case where the carrier decides on a set of

trips, make schedule available to shippers and operates it.

Liner shipping is mostly containerized. For Sui and Lam (2011), the invention of

containers in 1960s has dramatically changed the shipping business. They believed that

containerisation has fragmented the shipping operations and now network integration and more

control are needed. This paper will focus on liner shipping and activities involving shipping

lines.

For the purpose of this paper, we define strategy as ”the direction and scope of an

organization over the long term, which achieves advantage in a changing environment through

its configuration of resources and competences with the aim of fulfilling stakeholder

expectations (Johnson et al., 2010, p. 3). This classical definition encompasses how firms

compete at the corporate or business level in order to achieve an advantage and strategic value

(Abraham, 2013). We have chosen this very large and open definition in order to cover the

largest number of articles in a presumed narrow field.



Data collection and analysis

We performed a literature review by using the electronic database Virtuose-Uqam that is fed by

some well-known databases such as ABI/INFORM , EMERALD, JSTOR and so on, covering

the period up to June 2014. We thus decided to give an historical perspective to our work.

We used the search terms CORPERATE STRATEGY * AND SHIPPING INDUSTRY*;

BUSINESS STRATEGY* AND SHIPPING INDUSTRY* in order again not to narrowly focus

our research.

It led to 7464 items for CORPORATE STRATEGY * AND SHIPPING INDUSTRY*

and to 15745 for BUSINESS STRATEGY* AND SHIPPING INDUSTRY*, classified under

different subtopics. We decided to focus on subtopics related to Strategy, Corporate strategy,

Shipping and Shipping industry.

We checked some subtopics like “Studies”, “Experimental/Theoretical”, “Supply Chain

Management”, “Logistics”, using the titles of the items. The first results we see were less

relevant compare to the results recorded under subtopics named “Strategy”, “Corporate

strategy”, “Shipping” and “Shipping industry”.

The subsections we decided to keep showed together about 300 items. We read the titles

of these items and we kept 168. The titles containing words related to both shipping and strategy

were relevant to our conceptual boundaries. For example, title with words like “logistics”,

“shipping”, “competitive advantage”, “positioning”, “alliance”, “strategy”, “cooperation”,

“strategic alliance”, “diversification”, “differentiation”, “dominance”, were kept and the others

were removed.

We then read the abstract and of the 168 items remaining. The ones that were directly or

seemed to be about both strategy and shipping were kept and the others were removed. At this

stage, we kept 54 items. We then read the full articles. Based on that, we eliminated 21 articles

and kept 33. From the 21 eliminated, 2 were not fully accessible and 19 were mostly about



shipping without referring to the strategic aspects. By strategic aspects, we mean that articles had

to be clearly rooted in strategic management’s concepts or theories. For example, Alix et al.

(1999) did not refer to the strategy literature but their article dealt with alliance and integration.

Most of authors in this case used references consistent with the journal environment and their

communities (for instance the Journal of Transport Geography). Some papers may also have

addressed some other management aspects in shipping industry and were not relevant with

respect to our research.

The limitation of this methodology is obviously that we have likely bypassed some

articles falling under our conceptual boundaries but that have titles and abstracts that do not

reflect the contents. A brief overview of bibliography may have allowed us to overcome this

limitation, that is we checked that references belong or not to the strategy field.

The 33 items we kept were all published in peer reviewed journals. Strategy in shipping

industry is gaining more attention from scholars in the recent period. Most of the articles in our

literature review (79%) were published after 2004. In the same way, our results highlight that the

shipping industry become a more attractive topic in the strategy field agenda; considering that

only three articles were edited before 2000s.

0

2

4

6

8

10

12

14

16

Before 2000 2000 - 2004 2005 - 2009 2010 - 2014



Journal of Transport Geography is most used for publication on strategy in shipping

industry (18%), followed by International Journal of physical Distribution and Logistics

Management (9%). The rest of the sample is divided between journals which have edited one or

two papers dedicated to strategies in the shipping industry.

Journals Frequence

Journal of Transport Geography 6 International Journal of physical Distribution and Logistics Management 3 Industrial Marketing management 2 Journal of business strategy 2 Research in Transportation Economics 2 Business History 1 Growth and Change 1 Int. J. Production Economics 1 Int. J. Shipping and Transport Logistics 1 International Journal of Knowledge management 1 International Journal of Logistics Research and Applications 1 Marine Policy 1

Maritime Policy & Management 1 Organizational Dynamics 1 Scandinavian Economic History Review 1 Shipping Economics 1

Technovation 1 The international journal of logistics Management 1 The International Journal Of Management Science

1 The Service Industries Journal 1 Transport Policy 1 Transport Research 1 Transport Science 1 Total 33

21 items were published in journals related to transport industry and 13 in journals related to

business, history and distribution. Only one journal is considered as taking part to the strategy

field: The Journal of Business Strategy. Three academic journals are in some related areas and

may occasionally publish strategic management studies: Business History, Organizational



Dynamics, The Services Industries Journal, and International Journal of Knowledge

Management. None of those journals are listed at a A-level in the most established ranking in

management sciences.

Both “strategic management” journals are recognized as very practical-oriented publications

which want to be accessible to top and middle management audiences. This is a very interesting

result considering a community that always claims for bridging a gap between research an

practice but rarely does efforts for meeting this objective. Nevertheless, this non-representative

result may also mean that strategic researches about shipping industry lack theoretical

underpinnings and paradigms or do not consciously work them.

Literature analysis

From our analysis of 33 articles, we discussed the dominant strategies used by shipping lines as

analyzed and described in literature, the theories used as basis for strategy in shipping industry

and we finally discussed the methodology mostly used by scholars to study strategy is that

industry.

The mains strategic orientations of shipping lines

From the literature, we noticed that many contingent factors affect how firms strategize in

shipping industry. The mains are company size and the company ownership. Bigger companies

behave differently from the medium and small size ones. The companies that belong to groups

have different strategic approaches from the ones that are standing alone or from family firms

(Panayides and Wiedmer, (2011); Sys (2009); Markides and Holweg (2006).

The main strategic options used by shipping lines from our analysis are the following:

diversification, differentiation, concentration, alliances, specialization and cost leadership.

Anyway, those options are the main topics that articles we reviewed focus on. These results



show thus the range of interests from the strategy community and not necessarily highlight the

range of strategies in the shipping industry.

Strategy Authors

Differentiation Olavarrietta S. Ellinger E. A, 1997; Tongzon, J., Hang, W., 2005; Peter Lorange, 2001; Robinson, Ross, 2005

Diversification

Oswald J., Ghobadian A., O’Regan N., Antcliff V., 2013; Frémont, A., 2007; Carbone V., Stone A. M., 2005; Photis M. Panayides, Robert Wiedmer, 2005; Markides V. Holweg M., 2006; Olavarrietta S. Ellinger E. A, 1997; Notteboom T., Mercx F., 2006

Concentration Hugh Murphy, Stig Tenold, 2008; Carbone V., Stone A. M., 2005; Christa Sys, 2009

Alliances

Agarwal, R., Ergun, O., 2008; Anslinger, Patricia, Jenk, Justin, 2004; Fremont A, 2007; Gadhia K. H., Kotzab H., Prockl G, 2011; Mason R., Nair R. 2013 Carbone V., Stone A. M., 2005; Hertz S., Alfredsson M., 2003; Christa Sys, 2009; Photis M. Panayides, Robert Wiedmer, 2011; Ellinger E. A, 1997; ; Olavarrietta S., René Taudal Poulsen 2007; Cullinane K., Khanna M., 2000; Soppé et al., 2009; Poulsen (2007),

Specialization

Jari Juga , Saara Pekkarinen & Heli Kilpala, 2008; Lorange P., Fjeldstad D. Ø, 2010; Gadhia K. H., Kotzab H., Prockl G., 2011; Carbone V., Stone A. M., 2005; Hertz S., Alfredsson M., 2003; Markides V., Holweg M. 2006; Jari Juga , Saara Pekkarinen & Heli Kilpala, 2008; Delfmann W., Albers S., Gehring M., 2002

Cost leadership

Gadhia K. H., Kotzab H., Prockl G., 2011; Cullinane K., Khanna M., 2000; Markides V.,Holweg M., 2006; Olavarrietta S., Ellinger E. A, 1997; Syc C. 2009,



With respect to the emerging state of strategic management research in shipping industry,

research topics are somehow rooted in very classical trends on the strategy field. Cost leadership,

concentration and differentiation relate to the positioning school and Michael Porter’s influence

in defining generic strategies at business-level. Diversification and specialization relate to Igor

Ansoff’s seminal work about strategic development of large firms at a corporate level. Thus, the

field needs to elaborate on classical perspective in the theoretical building process before

rejuvenating in borrowing more contemporary approaches. Or, observed strategic behaviors in

the industry may reveal some very classical logics related to its mature state.

Shipping is asset driven business and global by nature. Sellers have customers located all

around the world. Because of resources and capabilities needed to have global coverage,

shipping lines have been forming alliances since the early days of the industry. It started with

conferences and consortia and continues to date through strategic horizontal alliances and drive

more attention from the industry scholars compare to other strategic approaches (Driel, 1992).

In sections that follow, we will present in more details our analysis results for each of the

strategies mentioned above.

Diversification

Freight market is volatile and that may result in significant increase and decrease of income

overnight. Companies may derive big profits from this volatility, but it may also wipe out the

entire business overnight. Because of volatility and cyclicality, risk management is one of the

most important activities in shipping business (Lorange and Datson, 2014, Cullinane and

Khanna, 2000). Shipping lines use diversification has a means to protect their businesses against

cyclicality and volatility and to maintain or achieve an over average performance (Oswald et al.,

2013).

Diversification is sometime used by shipping lines to reduce their costs and secure higher

margin by integrating some activities that can be done efficiently internally. It is also a way to



improve customers satisfaction and faithfulness by providing more value added services. Mearsk

for example diversified in terminal business because it has the resources and capabilities needed

to operate more efficiently that activity (Frémont, 2007). Maersk has now the highest schedule

integrity and that gives it a real competitive advantage over the competition (Notteboom and

Vernimmen, 2009).

Some shippers diversified to become more sophisticate player in order to secure their

strategic advantage (Markides and Holweg, 2006)

It is also believed that the potentials remaining in cost savings in transportation alone are

limited. To remain in business and generate higher margin, shipping lines must find

opportunities elsewhere. Therefore, there is a pressure to develop more value added services,

and diversification is perceived as the safest and easiest way to get there (Notteboom and Mercx,

2006)

Diversification is mostly used by larger players who has enough resources and

capabilities to operate conjointly several activities in different locations (Markides and Holweg,

2006; Panayides and Wiedmer, 2011). Shipping Lines diversified mainly through merger and

acquisition (Carbone and Stone, 2005).

The question whether diversification in shipping industry should be related or unrelated

remains unanswered from our review. Some scholars believe that related diversification leads to

superior performance because it transfers learning effects from a business to another and

unrelated diversification should be avoid (Olavarrietta and Ellinger, 2007). Others believe that

unrelated diversification can lead to more market power (Markides and Holweg, 2006,

Notteboom and Mercx, 2006). Lorange and Datson (2014) however believe that because of the

limits of human cognition, it is hard to manage highly diversified businesses under the same

corporation.

From our review, most of the time the unrelated diversification is done at the corporate

level whereas the related diversification is at the business level (Oswald et al., 2013, Frémont,

2007). Illustration can be found in the cases of Maersk Line (related diversification at business

level) and Bibby (unrelated diversification at corporate level).



Bibby Line, one of the UK biggest shipping lines is now part of Bibby Line Group, which

has financial services operations with Bibby Financial Services and seven other operations

including crew management, ship management, warehouse services. Bibby engaged with long

term diversification strategy in response to challenges in shipping industry (Oswald et al., 2013).

According to Frémont (2007), Maersk Line was offering transpacific services then

expanded to Europe and the Far East routes. Maersk’s first transhipment service in the Middle

East via Hong Kong was regarded as a genuine strategy. Maersk then used a hub in Dubai for

the East African coast, and other lines imitated model (Fremont, 2007). By 1990, Maersk Line

reached a global dimension through both organic growth and merger and acquisitions. It bought

Sea-Land to strengthen its position on East – West routes and bought Safemarine in South Africa

(Fremont A., 2007). Maersk built a massive presence on the round-the-world routes in order to

dominate the shipping market. It increased the number of hubs mainly on the East – West routes

(Fremont A., 2007). AP Moller group, Mearsk Line’s parent company is highly diversified at

corporate level with active in oil and gas value chain from exploration to production both

onshore and offshore with Maersk Oil, in construction and operating of port and cargo inland

services with APM Terminals, in offshore drilling services to oil and gas companies with Maersk

Drilling and Supply Service with Maersk Tankers, Damco and Svitzer.

Differentiation

Differentiation in the shipping industry is doing things differently from the competition : adding

value to customers and request above the average price (Lorange, 2001). According to Juga et al.

(2008), shipping is basically moving freight from point A to point B and cannot provide any

room for building advantage. To differentiate from the competition, shipping line should go

beyond just moving freight to innovate and develop more value added services.

Juga et al. (2008) believe that differentiation opportunity may be found in terminal

operation, warehousing, geographic coverage or firm’s responsiveness to customers’ requests.



Opportunity can also be found in frequency of service, directness of sailing, port coverage, door-

to-door service, intermodal service, logistic service and IT (Gadhia et al., 2011).

For Delfmann et al. (2002), a shipping line can differentiate by using its core process,

value add service, financial services or management support.

According to Lorange (2001), shipping industry should not be considered as an old and

mature commodity business where cost advantage in the major success factor. There is room for

advantage building in shipping industry by treating customers in different ways and get premium

paid for that.

Robinsson (2005) argued that shipping firm can differentiate from competition by

provide value that customers will accept.

Maersk differentiates from other shipping lines by exploiting its own service networks.

Maersk doesn’t belong to any alliance. Alone, it offers global coverage to its customers and

premium service by using its huge market power. In order to create more value for its customers,

Maersk developed a strategy of building strong domination on small ports. Maersk chooses to be

number one in ports that have lower position in the world port hierarchies in order to raise the

entry barrier and get the ability to influence policies within the ports (Fremont A., 2007).

It is believed that both small and big player can build differentiation based on business

model innovation. Lorange (2001) argued that innovation and service are at the center of

shipping business. He went on and said that firms need not to rely only on internal resources but

need to build a network organization to get the best services and knowledge available. They

should also adopt market based decision approach to understand the underlining factors creating

demand and supply in the industry (Lorange, 2001).

According to Doloreux and Melançon (2008), shipping companies are more innovative

when they engage with customers, suppliers or others stakeholders in a process of interactive

learning. Because smaller companies are more close to their customers compare to the bigger

players, they can be more innovative and differentiate if they develop the skills needed to

incorporate information from the field into their strategy making process (Lorange, 2001).



According to Lorange and Fjeldstad (2010), traditional shipping lines were more

generalist and used to adopt an integrated approach, involving many shipping aspects under the

same organization. That leads to two major hindrances to innovation: silo focus and bureaucracy.

Silo focus refers to an organizational design where services are divided, with no cross-

fertilization within departments. That leads to incomplete implementation of strategy and hinder

innovation because knowledge is not shared (Lorange and Fjeldstad, 2010).

Bureaucracy is the organisational design where upper management is claiming credits for

accomplishments while putting blame on lower level workers for mistakes. In bureaucracy,

status is more important than the building of the business. That leads to risk aversion and very

few are managers who are able or willing to take actions that may lead to innovation and high

performance (Lorange and Fjeldstad, 2010).

Differentiation is fueled by the knowledge of the customers and their emerging needs,

and by innovation that may lead to appropriate answer to the customers’ needs. According to

Lorange and Fjeldstad (2010), successful firms are those who are willing to experiment new

things, they are not too conservatives. Firms should therefore look outside their boundaries to

stimulate innovation. He added that cooperating with others can help to know the customers

more. Innovation may be technical, commercial or environmental (Lorange and Fjeldstad, 2010)

Concentration

In shipping industry, concentration is mainly a way of competing for smaller players (Markides

and Holweg, 2006; Panayides and Wiedmer, 2011). It is mainly expressed in terms of geographic

coverage (Carbone and Stone, 2005). Smaller players, because of their limited resources, are

focusing on niche market (Panayides and Wiedmer, 2011).

As a way of concentration, lines may decide call on fewer ports, by providing high

volume on fewer routes with bigger ships. Most Asian lines operate in global market from home

with alliances. Gadhia et al. (2011) refer to that as home based international.



According to Lorange and Datson (2014), an individual diversified company will lose out

against competitors who put all their effort on understanding the supply and demand drivers of a

particular niche. Concentration leads to a better understanding of customers and their emerging

needs and may help small players to win the completion game (Lorange and Datson, 2014).

Alliances

Shipping business is global in nature and, except Maersk, no firm have all the resources and

activities needed to satisfy all the needs of its customers (Carbone and Stone, 2005). Alliance

allows members to operate different routes around the world, it gives smaller and medium size

players the chance to create more capacity (Sys, 2009). Alliance improves economy of scale,

leads to efficient operations, increases the bargaining power of the actors, generates faster

leaning, faster implantation and low investment (Soppé et al., 2009), increases customer base,

improves asset utilization, provides frequent sailing and faster transit time (Agarwal and Ergun,

2008) and firms can pass these benefits to customers through a superior value proposition ( Hertz

and Alfredsson, 2003).

Alliance enlarges networks, facilitates new product development, helps to enter new

region and is less expensive than solo strategy (Carbone and Stone, 2005). It gives the ability to

possess and deploy flexibility strategy to manage in time of uncertainty (Mason And Nair, 2013).

For Poulsen (2007), cooperation is a way to cope with industry revolution.

Panayides and Wiedmer (2011) mentioned four different forms of collaboration:

Horizontal alliance, vertical alliance, defensive collaboration and offensive collaboration.

Horizontal alliance and vertical alliance are mostly technical. Horizontal alliance is

collaboration among firms doing the same activity for sharing of capacity, increasing frequency,

coordinating containers, etc. This form of collaboration is mostly developed by small and



medium size operators to deal with demand uncertainties. Bigger operators usually have all the

resources they need to stand alone and cover their markets (Panayides and Wiedmer, 2011).

Vertical alliance is collaboration among operators offering complementary services such

as shipping services, container management services, trucking services and so on.

Defensive and offensive collaborations do have more strategic purposes. According to

Panayides and Wiedmer (2011), firms with weaker market position may develop a defensive

collaboration to raise entry barrier and build some competitive advantages. Offensive

collaboration is mainly adopted by operators with stronger market position to secure their market

power (Panayides and Wiedmer, 2011).

Some alliances lead to geographic diversification. This form of collaboration is mostly

built by larger players (Panayides and Wiedmer, 2011)

According to Panayides and Wiedmer (2011), alliances are unstable due to the number of

members and the way some members behave. Members change too often and firms may even be

hindered from deploying they own strategy, reason why some players prefer merger and

acquisition as main means of getting new knowledge, launching new product and developing

new market.

The benefits of alliances are not equally shared by the scholars. For some scholars, it is

true that alliances allow shipping lines to reinforce their networks. However, extended networks,

greater market access or increased integration have not necessarily creates competitive advantage

for shipping lines. They are not in the business of managing networks but in the business of

movement freight from shippers to buyers and competitive advantage is created through genuine

strategy that derive from the field (Lorange and Fjeldstad (2010).

For others, it is true that alliances allow sufficient capacity and high frequency sailing.

However, service differentiation is difficult in alliance. It difficult to build a brand and get

customer loyalty, and there is a high exit cost. Because alliances are virtual organization where

cost and capital investments are left to individual firms, they are not long term solution but a

good means to manage competition in short term (Anslinger et al., 2004).



Specialization

In shipping industry, some lines do have multi-activities with some dominant specializations

(Carbone and Stone, 2005). Others are specialized in moving some particular kind of freight

(Hertz and Alfredsson, 2003).

Specialisation is sometimes presented as a way of differentiation (Juga et al., 2008;

Gadhia et al., 2011). Firms may also specialize by focusing on one particular aspect of the

shipping business (Lorange and Fjeldstad, 2010)

For Lagoudis and Theotokas (2007), specialization is a strategy mostly developed by

small company, along with a special focus on quality, whereas lager shipping lines are focused

on cost leadership.

Cost Leadership

Cost leadership is a strategy that aims to become the low-cost provider in the industry by making

a cost reduction on all value chain activities (Gadhia, 2011)

By the times of conferences, firm were co-operating by reaching agreement of divers

aspect of the shipping business, including the pricing. Without any control on the pricing

process, the winners were those able de develop a cost leadership (Panayides and Wiedmer,

2011; Mason and Nair, 2013; Poulsen, 2007; Agarwal and Ergun, 2008; Driel, 1992)

According to Cullinane and Khanna (2000), cost leadership can be achieved through

economy of scale. However, it is a short term competitive advantage because easily imitable.



For Syc (2009), because of the shipping market structure, dominant price leadership is

not possible. She says that the industry is concentrate because of consolidation. Larger player are

capturing lager market shares. The market share of dominant players moved from 39% in 2000

to 60% in 2009. But, she added that the industry is also fragmented at some point because only

20 lines have more than 1% market share. She qualified the industry as loose oligopoly.

In this section, we highlight that diversification, differentiation and alliances consist in

some main characteristics of strategies in the shipping industry. Differentiation would probably

be a promising research avenue to much more scrutinize in the extent to which it covers a largest

range of business model strategies with some specific value creation arrangements.

Theories used in research on strategies in shipping industry

Many theories have been used in literature to explain the strategic choices of companies. We

pointed out Porter’s Five forces model, the resources based view and the dynamic capabilities

approach as the core perspectives. Many other theories have been used, not necessarily rooted in

strategic management, but these are the ones mostly cited in our literature review on strategies

used in shipping industry.

Michael Porter’s approach

In Porter’s view, strategy is about building a sustainable competitive advantage through a unique

value proposition.

In this view, high profitability is achieved through the selection of an attractive industry

by analysing the five forces that govern the industry (bargaining power of suppliers and



customers, the treats of new entrants and substitution goods, and the level of competition), and

the selection and achievement of a strong relative position in the industry by using the value

chain analysis.

Porter is considered the father of what is called the generic strategies: cost leadership,

differentiation or focus which are highly used in shipping industry. Again, one may question

about this over-utilization of a Porterian perspective as it requires some very stable and non-

complex conditions in the environment in order to carry out very static studies of the industry.

Shipping industry is nowadays characterized by high complexity and velocity and need studies

dedicated to analyze strategies, competitive interactions and movements under pressure and

chrono-competition.

Resource based approach

Other scholars have approached strategy through the resource based models. According to these

researchers, the competitiveness of a company is related to its ability to exercise control over

resources and to organize a particular set of resources that is not easy to imitate (Penrose, 1959).

For them, the costly to copy attributes of the resources are the real sources of competitive

advantage. Resources are made of physical resources, organizational capital resources and

human capital resources (Progoulaki and Theotokas, 2010).

For Olavarrietta and Ellinger (2007) firm’s diversification based on core resources and

competencies is more effective and produce superior performance. Their also believe that

alliances based on complementarities of resources produce positive influences (Olavarrietta and

Ellinger, 2007). Resource based approach can help firm to differentiate through innovation, for

this theory considers firms to be rent seeker rather than profit maximize, and the rent seeking

behaviour emphasizes on entrepreneurship and innovation (Olavarrietta and Ellinger, 2007).

Strategic resources are scarce and costly imitable and that leads to superior performance and

generate rent. Olavarrietta and Ellinger (2007) believe that to provide sustainable competitive

advantage, strategies like cost leadership or perceived uniqueness should be base on resources.



For Jauga et al. (2008), resource based theory emphasizes on company’s tangible and

intangible resources that are built over time. It helps a firm to build competitive advantages

oriented toward service development or competence development.

Olavarrietta and Ellinger (2007) described three resource categories : Input factor

(generic resources like trucks, laoding capacities, etc.), assets meaning tangible or intangible but

visible resources that are built over time (equipments, patents, etc.,), and capabilities described

as complex bundle of individual skills that enable firm to coordinate activities (new product

development, team work, etc.)

For Robinson (2005), every competitive advantage is built on firm’s unique and specific

resources described as core competencies, strategic assets and core processes.

Progoulaki and Theotokas (2010) described how shipping firms can build sustainable

competitive advantage based on human resource. For them, because shipping is a mature

commodity business, there is a need for minimum unit cost. Therefore, cost leadership prevails

in competitive pattern. Because labor cost makes an important proportion of their total cost,

companies are running after cheap crews.

Staff on board is different in nature from staff out board and there is no integrated human

resource management approach in most shipping company. Therefore, companies may build a

not easily imitable competitive advantage through an integrated human resource management

system. Firms need to adopt a system approach in their human resource management because

individual practices are easily imitable whereas coherent systems are not (Progoulaki and

Theotokas, 2010)

Progoulaki and Theotokas (2010) argue that Resource Based View has four tenets: Value

(V), Rareness (R), Imitability (I), Organisational support (O), making the acronym VRIO. The

firm’s ability to build and keep profitable market position depends on its ability to gain and

defend advantageous position on underlying resources. A set of resources and capabilities that

cannot be easily imitated or substituted leads to sustainable competitive advantage (Robinson,

2005, Progoulaki and Theotokas, 2010).



Kim, S. et al. (2011) emphasize the importance of knowledge as key resource in decision

making in the shipping industry. They developed a knowledge management model that can help

shipping companies in their decision making process. But the model is more focused on the

operational parts of the business than the strategic decision making process.

As differentiation (at a business level) and diversification (at a corporate level) are to be

among the main strategies in the industry, it is consistent that researches address the question of

which resources both strategies rely on. Differentiation relates to resources that achieve a

competitive advantage. Diversification is concerned with resources that may be successfully used

in more than one business.

The dynamic capabilities approach

The dynamic capabilities refer to the ability to integrate, build, and reconfigure internal and

external competences to address rapidly changing environments. Capabilities are the skills

needed to take absolute control over resources, and the capacity to perform specific tasks and

operations (Cui and Hertz, 2011). In this view, competitive advantage is based on distinctive

competences and capabilities that rivals cannot imitate or possess (Progoulaki and Theotokas,

2010). Dynamic capabilities are sometimes defined as organisational and strategic routines by

which firms achieve new resource configuration (Progoulaki and Theotokas, 2010).

For Oswald et al. (2013), Dynamic capabilities refer to tools employed to manipulate

existing configuration in order to create new resources configuration. It helps firms to convert

existing resources into competitive advantage. Dynamic capabilities give firms the capacity to

sense and shape opportunities, capacity to seize opportunity by orchestrating resource

manipulation. It also gives the ability to adapt in front of challenges like high market velocity

(Oswald et al., 2013).

Kim, C. et al. (2008) stated that competitive advantage should be built through

expanding capabilities such as human resource management and technology rather that



extending physical assets. They brought in the concept on Blue Ocean strategy in logistic

business in more normative way. For them, because of competition in logistic business,

companies must devote themselves to finding new growth engine. In this context, blue ocean

strategy provides a guide line for how companies can survive by creating new market space by

using their capabilities instead of competing in the existing market.

Cui and Hertz, (2011) explain more the link between resource and capabilities by stating

that capabilities are the sources of competitive advantage and resources are the sources of

capabilities. For Tongzon et al. (2009), the ability to develop a long term and trusting association

with customers is a complex phenomenon that cannot be imitated.

Both resources and capabilities take part to the same theoretical roots of a stream of

research in shipping strategies. They only change the level of analysis from the owned or

mobilized resources to the way these resources are combined in a unique alchemic process.

The chain perspective

The chain perspective is promoted by Ross Robinson (2005) but consists in a very current way of

dealing with the shipping industry functioning beyond works in strategic management (i.e.

supply chain and logistics management). We thus consider this article as an important albeit

isolated piece.

Robinson (2005) states that shipping lines move freight between buyers and sellers and

work in chain. To understand the business success of shipping lines, one must understand the

structure of the supply chain and how individual firms operate and accumulate value from their

position within the chain.

For him, Porter focus on market not on the chain and that leads to an underestimate of a

full range of contingent coexistences. Resource based approaches focus on internal resources

and start from competitive market rather than supply chain (Robinson R., 2005).



Robinson (2005) believes that chain perspective is appropriate to understand the

competitive advantage of shipping lines and to define appropriate strategy for their success.

In chain perspective, business success is defined in terms of acquisition and exploitation

of supply chain and market power in order to move from weak position to market leadership.

Because shipping lines are in the business of moving freight, they are third party service provider

and will derive value only by delivering value that customers accept. They will not derive value

from network, nor from longer, larger or faster ship (Robinson, 2005).

The focus of shipping lines should be on delivering superior value to target customers at a

price that allows profit. An individual line will capture competitive advantage only by delivering

superior value to customers on the basis of its position in the network. Network may allow

having access to larger customer base. The chain has to deliver value at customers’ satisfaction

and to the other individual companies making the chain, otherwise it will disappear (Robinson,

2005).

In the chain, each shipping line has something to offer and derive power from that. Power

is defined as the ability to own or control on critical assets, and it oscillates from dominant to no

power. The shipping lines strategy should focus on the acquisition of market power. Dominant

players may use their power to close the market to the smaller payers (Robinson, 2005).

According to Robinson (2005), shipping networks are the artifacts of the corporate

strategy. The strategy will answer the following questions: what value, to which customer, at

which level of profitability and what line to operate.

The network to which the line belongs will impose some constraints on the value to

capture. There will be tension between value to deliver and value to capture. Shipping lines

operating in networks where value erodes will seek to redefine their strategic positioning to

influence the chain or leave (Robinson, 2005).



Methodology used by the scholars

30% or 10 articles included in this review are based on theoretical approaches. This are

from Agarwal, R., Ergun, O., 2008; Anslinger, Patricia; Jenk, Justin, 2004, Cullinane K., Khanna

M., 2000; Delfmann W., Albers S., Gehring M., 2002; Driel, Van Hugo, 1992; Kim S-K., Felan

J., Kang H. M., 2011; Lorange P., Datson E., 2014; Lorange P., Fjeldstad D. Ø, 2010; Lorange,

P., 2001; Olavarrietta S., Ellinger E. A, 1997;

30% or 10 are based on case studies. These are the works of Tongzon, J., Chang, Y-T.,

Lee, S-G., 2009; Robinson, R., 2005; Poulsen, R. T., 2007; Oswald J., Ghobadian, A., O’Regan,

N., Antcliff, V., 2013; Mason, R., Nair, R., 2013; Kim, C., Yang, H. K., Kim, J., 2008; Juga, J.,

Pekkarinen, S., Kilpala, H. 2008; Hertz, S., Alfredsson, M., 2003; Fremont, A., 2007; Cui, L.,

Hertz, S., 2011

21% or 7 articles are based on the exploitation of secondary data. The data are from

companies’ websites or (Gadhia K., H., Kotzab H., Prockl G 2011,), from websites such as

www.dynamar.com (Sys, C., 2009) or www.alphaliner.com (Panayides, M. P., Wiedmer, R.,

2011), from Containerization International Yearbook (Gadhia K., H., Kotzab H., Prockl G 2011),

from ports (Sui, J., Lam, L., 2011) or from other data base available (Soppé, M., Parola, F.,

Frémont, A. 2009; Notteboom, E. T., Vernimmen, B. 2009). Carbone V. and Stone A. M. (2005)

31%

30%

18%

21%

Theoretical Case study survey Secondary data



adopted a mix methodology. After a systematic and extended review of specialized press and

analysis of annual accounts, they conducted personal interviews with the senior management.

18% are from survey studies. These are the works of Panayides and Polyviou, M., 2011;

Notteboom, T., Mercx, F., 2006; Markides, V., Holweg, M. 2006; Lagoudis, N., I., Theotokas, I.,

2007; Doloreux, D., Melançcon, Y., 2008. Sometimes, the authors adopt a mix methodology by

coupling survey with interviews (Progoulaki, M., Theotokas, I., 2010).

From this short outlook on research methods, we may confirm our assumption (see

Introduction) that the little ability of scholars to access to empirical evidences and data, but also

to shipping companies explain the lack of interest from the strategy research community. More

than half of articles are not based on primary data and even more than a third of those consist in a

theoretical contribution about strategies in shipping. The important part of case studies in our

sample on the other hand shows the need for deep understanding of strategic behavior at a micro-

level before generalization attempts.

DISCUSSION: TOWARDS A MORE EMERGENT AND “PRACTICE”

VIEW OF STRATEGY IN SHIPPING INDUSTRY?

Most of the strategies reported in literature from our review are based on Porter’s works or

assumptions. Porter’s approach is based on industrial organization theories and focuses mainly

on how to build a sustainable competitive advantage through positioning (Olavarrietta and

Ellinger, 1997; Farjoun, 2007). The main assumption here is that environment is stable and

predictable and changes are evolutionary (Farjoun, 2007).

Porter’s view is sometimes referred to as long term planning approach ((Mintzberg H.,

1987) or structural view (Farjoun, 2007). In Farjoun’s view, the structural strategy approaches

based on planning and building long term competitive advantages may be relevant in stable

business environment, but is completely irrelevant in instable business environment like the

shipping industry. In fact, in the context of frequent discontinuous and revolutionary changes,



and where stable performance difference between firms can no more be achieved, firms should

be flexible and more focused on temporary advantages and experimentation (Farjoun, 2007).

For Mintzberg (1987), any strategy that is built on the basis of distinction between

strategy formulation from strategy implementation may be irrelevant at some point of time. The

top management develop the long term vision and the low level workers have to implement the

vision (Mintzberg H., 1987).

For instance, the resource based strategies that emphasize the need to possess unique,

valuable and defendable resources or capabilities aiming to lead the company to long term above

average performance may be irrelevant in time of high velocity. In contrast, the dynamic

capabilities perspective is to be a more promising research avenue: capabilities support change in

resources combinations as firms cope with uncertainty and velocity. The chain approach is based

on the need of building a strong market power in the chain by controlling strategic assets. But,

the companies making up the supply chains are different in size. Larger companies usually

control the strategic assets in the chain and have more power. If strategy is limited to getting

more power in the chain, how will the smaller players strategize? The chain perspective has the

advantage of explicitly emphasizing the need of building stronger market power to create

competitive advantage, but it seems more suitable for larger players.

We believe that, because of the high velocity of shipping industry, the activity based view

may be of great value in building competitive advantage. The activity based view states that

strategy is social in nature and it expresses itself in activities (Jarzabkowski, 2005). The activity

based view belongs to the strategy as practice theories. Most emergent (Mintzberg H., 1987),

adaptive (Farjoun M., 2007) or short term strategies (Lorange P., 2010) have more to do with the

activity based view.

Mintzberg (1987) uses the working process of a craftsman to describe the strategizing

process of a firm. For him, crafting better describes the way strategies emerge. He believes that

the image of long term planning promoted by management literature is misleading to those who

get involved without judgement. The image of craftsman allows strategists to know their

organization, to know their market in details and to think deeply on the direction to follow.



The shipping business environment as described above is global in nature and highly

competitive. Situations are continually evolving and companies need to adapt to not die. In this

context of ever changing business environment, Mintzberg’s recommendation for strategists is to

go back to craftsman’s wisdom (Mintzberg H., 1987).

Mintzberg uses a metaphor of a potter to show how strategizing works when business

environment is unpredictable. Because the long term planning approach separates the strategy

formulator from the implementer, innovation are not quickly incorporated in strategy and firms

struggle to meet the real needs of the customers who are getting more and more demanding

(Mintzberg H., 1987). For Mintzberg, as a potter works hard to make a pot, in the same way the

strategist works hard to develop a strategy. He knows what did not work, he knows his product,

and he knows his market. He never do strategic analysis, he feels thing and make decision based

on tacit his knowledge. He has his knowledge in his mind while his hands are working the clay.

He is the formulator and the implementer. The potter takes actions, fails, tries again, learns and

adjusts continually.

Mintzberg and Waters (1985) call it that emerging strategy; it emerges in response to

evolving situations (figure below). They do not deny the usefulness of long term strategy but

emphasizes the fact that people involved with the situation at hand should be having more

responsibilities in the strategizing process. He proposed the concepts of Umbrella strategy

where the C-suite sets on broad guidelines and leaves the specifics to the low level employees,

and Process strategy where the C-suite crafts the structure and leaves the content to the low

level employees’ discretion. In Mintzberg and Waters’s view, people down in the hierarchy are

the ones in touch with the real situation at hand. Letting them be formulator and implementer

will make strategy effective.

The short-term pressures on the conducting of business and the acceleration of

competition regimes have both reduced the strategic agenda to an almost daily exercise and the

strategic creation work to an extensive mime contest in a lot of industries. Realized strategies in

shipping industries are more probably a mix of intended strategy and emergent strategies in the

flow of action. And we need studies about the way that strategies are “formed” in practices. Sure

that the strategies in shipping companies are much more entrepreneurial than the hierarchical



perspective underlying the classical works we pointed out. And here is stimulating avenue in

addressing strategies in shipping industry.

For instance, Burgelman (1985) proposes an evolutionary approach to the production of

opportunities associating deliberation and adaptation in the same process of strategy production

which joins autonomous and induced strategic processes. The winning opportunities resulting

from autonomous processes may be retained and worked into the organization’s main strategic

schematic at the risk of replacing it. More widely, strategy is the intra-organizational process

vector of the firm’s strategic evolution in which strategic opportunities emerge, are retained and

then selected (Burgelman, 2002).

From : Mintzberg and Waters (1985)

For Lorange and Fjeldstad (2010), family businesses dominate the shipping industry

because they make faster decision whereas large companies have to go to the decision committee

before acting. In the meantime, the shipping marking is moving fast and late decisions become

irrelevant. Family firms’ CEO according to authors are more entrepreneurial and dynamics and

that is a success factor in a rapidly changing context. Lorange and Fjeldstad (2010) describe

entrepreneurs as people who are able to see the needs of the customers and mobilize resources to

provide good and appropriate answers, the ones that customers are willing to pay premium to



get. That required being involved with the real situations. Family firms in shipping industries

may thus be the most promising research field to address the entrepreneurial and emerging facets

of strategy formation.

Conclusion

Shipping is very important for the world trade and economic prosperity. But, the shipping

industry is becoming more uncertain because of high competition from around the world. To

succeed, shipping lines need to build good strategies.

So far, the literature on strategy in shipping industry is dominated by papers from

scholars working in fields like Transportation, Geography, Economics, Marketing or History.

The strategies developed in those papers are more generic and based on Ansoff and Porter’s

seminal contributions. Some scholars have used the resource based theory, the dynamic

capabilities or the chain approach to study strategy in shipping industry. But because of the

evolving nature of this industry, scholars from the management and strategy field should be more

involved in producing knowledge on strategy in shipping industry.

Some theories like the activity based theory that emphasizes on what people do and the

social nature of activities should be looked at very closely as a venue for strategy formation in

shipping industry in order to develop strategy that are more relevant because of the high velocity

of the shipping industry. Strategic activity consists in permanently scrutinize and work the

“potential of the situation” so as to transform (not to act) the course of action (not the path)

through an indirect and silent support (Jullien, 2011). Thus, the emergence of strategy takes part

to a process of “wayfinding”. For Chia and Holt (2009), wayfinding “is characterized not as a

plotted sequence of static positions but as the coming-into-sight and passing-out-of-sight of

various contoured and textured aspect of the environment” (Chia and Holt, 2009, p. 163).

Opportunities emerge spontaneously during this “between two times” owing to the availability of

agent. Thus, “(t)he wayfinding view treats the agent as intimately immersed in and inextricable



from contexts, and, as such, his or her actions emanate from within the constantly evolving

circumstance” (Chia and Holt, 2009, p. 159).

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