Shipping Crisis in India 1980s

1. With the changes taking place in the shipping industry, what where the ship-owners motivations for outsourcing vessel and crew management to third-party ship managers?

In the shipping crisis of the 1980s, there were many complex and evolving systems of regulation imposed by national and international maritime administrations.

The shipping business was suffering from a fundamental image problem. Mr. Bajpaee felt it was losing out to other industries in attracting the best and brightest people.

In older times, a ship’s captain was its owner and oversaw the purchase and sale of cargo, the recruitment of crew members, and the daily ins and outs of seafaring operations. They usually put their own capital at risk.

In the 1980s, the maritime industries suffered from the downturn in world trade, which was further exacerbated by problems of excess capacity, rising costs and falling freight rates. Too many ships were competing for too little cargo and freight rates were often so low that they barely covered operating costs.  

In that time, enthusiasm for outsourcing was running high ship-management companies offered ship-owners the option of separating shipping operations from the asset management, sales and marketing aspects of their business. This freedom the owners to focus on the revenue-generating side of their business (ie. Marketing cargo space).

1. How was Eurasia able to differentiate itself from the competition?

Eurasia had established regional headquarters in Hong-Kong, Bombay and Hamburg, and a number of regional offices, extending its coverage to offer year-round, world-wide service. The company had expanded to a total of 90 ships under management by 2004. It positioned itself as an Asian company with global operations.

While some of its competitors employed niche marketing strategies; claiming distinctive competencies in managing certain classes of vessel or as technical, financial management, risk management or liability experts – Eurasia’s service offerings were not product-centric. A client could pick and choose among the various services and a service package would be assembled accordingly. To meet customer requirements, Eurasia was able to offer dedicated seafarers’ qualified for any size or type of tanker, bulk carrier or container ship. It also deployed advanced database-management and computerized his formation system that gave users access to timely and accurate information.

There had only been a minor increase in the size of the world fleet from 1999 onwards, and consequently third-party ship managers were competing in the same limited marketplace. Some ship managers merged 10 form larger units, aiming to benefit from economies of scale. Eurasia bucked this trend: its strategy was not geared towards size. As a member of the Schulte group of companies, it could generate economies of scale by pooling resources with the four other management groups under the parent company.

Eurasia escaped from pressures to acquire or merge with other companies to remain cost-competitive. By slaying relatively small within the structure of the Schulte Group, the company was able to offer far more personalized services and to maintain somewhat unique business mode, compared with the competition. Thus, Eurasia could offer both cost competitiveness and product differentiation as advantages over its rivals. Rajaisli Bajpaee believed this two-pronged approach was needed to resolve two seemingly conflicting customer requirements – low costs and personalized service. Mr. Bajpaee coined the strategy statement “Being the best, not necessarily the biggest” as his company’s objective: not to strive for significant growth in a given market, but to provide the highest-quality service while satisfying customers, shareholders, and the staff.

1. What is Total Quality Management, and why was it an appropriate organizational change mechanism for Eurasia?

“TQM is a system of organizational management based on a framework of continuous improvement. As such it had both cultural and technical dimensions, and called for proactive leadership and firm commitment on the part of management.

The TQM approach could be viewed in terms of four components:

1. A definition of quality in terms of the customer’s requirements.
2. An organization-wide quality performance standard.
3. A work system that included planning, badgering, reward-recognition and other systems to consistently produce quality.
4. A meaningful way to monitor and measure the results of the system.

With the re-engineering of business processes and establishment of best-in-class benchmarks, TQM was formally implemented at Eurasia in 1995. Within the Company’s organizational context, Mr. Bajpaee was the umbrella of TQM as one that could efficiently transform Eurasia’s key resources – its people, processes and technology – into deliverable outputs.