Freight on Oil Tanker: Combination Vessel - Porter's Five Forces

Oil Tanker Shipping Industry (Competitors):

Industry Structure: Concentrated

Product Differentiation: Generic

Technological Change: Slow (Long Product Cycle)

Product/Service Technology: High

Location: Global

Product Life Cycle: Growth/Maturity

Size of Oil Tankers: Large Combination Vessels

Length of Voyage for Oil Tanker: Consecutive Voyages

Freight on Oil Tanker: Combination Vessel (dry goods and oil)

Porter's Five Forces:

Threat of Entry:

The Oils Tanker Shipping Industry can be seen as having a high threat of entry, particularly in the areas of Economies of Scale, Capital Requirements, and Governments Policies.

Economies of Scale:

Economies of Scale in this industry are not as simple because of unpredictable and volatile shipping sectors. However, there is still room for a competitive advantage in this industry in the dry goods and bulk sector. There has been a large increase in the number of large ore carriers needed for the long-haul transport of ore from Brazil to China, which can be used for alternative employment in times when there is slower demand for oil.

Capital Requirements:

The need for large financial resources creates a barrier to entry in the oil tanker shipping industry. In 2005, the estimated cost of new oil tankers is $18-$22MM for a 32,000-105,000 DWT vessel. Because of the high investments, many of the oil tankers are often sold second-hand.

In addition to the purchasing of a vessel, there are also large tanker operating costs which include wages, repair, maintenance, fuel and insurance (which can go up substantially depending on the age of the vessel. Also, in today's environments, shipping companies have also had to contend with the rise in piracy along the shipping routes of the Suez Canal and also environmental costs for any accidents and spills as we have seen from the BP Accident that occurred last year. Operating Expenses will also begin to increase due to the threat of inflation.

Government Policies:

Because of the need for environmental protection, government policies can be a source of high barrier entry. Since the BP Oil Spill, there has been increased amount of government policies put in place to prevent another disaster. Governments Policies can also affect the amount of investment in a vessel as the case introduces the Norwegian Government allowed owners to write off up to 25% of the cost of