Executive Summary
Over the past, the shipping industry has been characterized by a few players who are in stiff competition as the contemporary world economy has grown significantly. This has required the organizations in the industry to maintain high quality services to retain their competitiveness.
This discussion gives an analysis of Paragon Shipping Inc. The company was formed in 2006 after which it has retained a high level of performance. The company’s main objective is to provide best services by maintaining safety and dependability of its services. The company has managed to attract a significant number of customers by increasing its competitiveness.
Organizational overview
Paragon Shipping Inc. is an international company that is involved in the transportation of dry bulk cargo as well as containers. The company has many vessels that enable it to cover various trade routes across the world. The company is involved in carrying a wide range of cargo, the fact which comes from different industries. Currently, the company has a carrying capacity of 747, 994 dead weight tons. However, there are efforts to increase this capacity to approximately 1.0 million dead weight tones (Paragon Shipping Inc. 2011). The company is also much committed to ensuring that it maintains maximum value for its customers. The company is also committed to ensuring that there is maximum safety in its operations.
Paragon Shipping Inc. was formed in April 2006. The business strategy of the organization is to build and maintain strong relationships with charterer. The company is also determined in providing the most reliable sea transportation services at competitive cost levels.
The company’s head quarters are located in Voula, Athens. Currently, the company operates a fleet of modern and more cost efficient dry bulk vessel’s that serves customers from all over the world (Paragon Shipping Inc. 2011). The company has pending developments which aim at expanding its fleet to take the advantage of increasing demand in the shipping industry.
Paragon Shipping Inc. is faced by a number of competitors for the market share. Some of the company’s main competitors include Dry Ships Inc., Diana Shipping Inc., Excel Maritime Carriers Ltd, and Star Bulk Inc. among others.
Strategic assessment
External analysis
Paragon Shipping Inc. offers a wide range of transportation services to its customers. The company operates in the shipping industry which has several competitors. The shipping industry market structure is oligopolistic as it has a few companies which compete. The existing companies have well established brand and loyal customers. This creates a major barrier to entry into the industry by new players.
The shipping industry has been going over tremendous changes over the recent past. The customers have differing needs. Therefore, there is a big variation in the services offered based on these variations. For instance, Paragon Shipping Inc. offers transportation services to various kinds of customers. For instance, the company offers transportation services in agricultural products and a number of mineral products.
Due to the recent improvements in technology, many developments are taking place in the shipping industry. One of the major innovations in the industry is the integration of internet in operations. Through the use of internet, customers do not necessarily need to travel to the offices. Incorporation of the recent technology in the shipping industry has enabled organizations to increase their efficiency levels significantly. Customers can also check the status of their shipment from anywhere at any time.
Porter’s five forces
The porter’s five forces can help in providing in analyzing the shipping industry.
Risk of new entry
As already noted, the barriers of entry in the shipping industry are high. It requires a large amount of capital to start the shipping business. The establishment of an international transportation network is usually high since it requires large amounts of fixed costs. The industry favors the large companies because they can minimize its operational costs. Therefore, there are low chances of new entries in the industry.
Rivalry
The few players in the shipping industry are engaged in a stiff competition. Each company is determined to maximize its market share in the international market. For instance, Paragon Shipping Inc. is engaged in tough competition with its competitors like FedEx. FedEx is determined in improving its services by adapting quickly to its environment. The high level of rivalry in the shipping industry implies that the established are required to maintain high quality services to retain their customers (QuickMBA 2011). They are also required to provide services at lower prices and maintain a high level of innovation. In the shipping industry, the customers are free to shift from one company to another. There is no significant cost incurred by the customers by shifting from one organisation to another. This intensifies the level of rivalry in the industry.
Buyer Powers
In the shipping industry, the bargaining power of customers is usually very high. Customers can also easily shift from one company to another. Customers will, therefore, tend to shift to organizations which offer cheaper and quality services.
Supplier Power
The power of suppliers in the shipping industry is usually low. The large shipping companies have a significant impact on the prices offered by the suppliers of various products and services in the industry. For instance, shipping companies can significantly affect the prices offered by the supplier because there are several suppliers. The larger the number of suppliers in the industry is, the lower the power of suppliers in the market. In this case, shipping countries can switch from one shipping industry to another because they offer undifferentiated products.
Threat of substitutes
There are not many substitutes products involved in the shipping industry. It is difficult to find alternatives to delivering their products. In other words, the services provided by the shipping organizations are very similar and cannot be easily substituted with other similar commodity.
SWOT analysis
In every organisation, the SWOT analysis is important in enabling an organisation to determine its position in the market. This analysis also enables an organisation in detecting its areas of weaknesses which is necessary in formulation of the necessary policies. This analysis also provides an organisation with a clear understanding of its strengths. The SWOT analysis also provides information about the opportunities available in the market for the company. This information is necessary in providing an organisation with the necessary information about the market. SWOT analysis is one of the most valuable resources which provide the executives with important information that is necessary in making critical decisions. In other words, SWOT analysis is of great significance in understanding of the key information concerning the company.
Strengths
Paragon Shipping Inc. has recently recorded a recommendable improvement in its operations. The company has a number of strengths that makes facilitates its performance in the shipping industry.
To start with, the company has an experienced management team. It has a significant number of employees who are armed with experience in shipping, both in operational and financial fields. Therefore, the company has managed to use the experienced team of its employees to improve on its efficiency in its operations and employment of the most cost effective operations. Experienced workforce has also helped to maintain high standards of performance, safety and reliability. The company’s Chief Executive Officer Mr. Michael Bodouroglou has been in the shipping industry since 1976 (Paragon Shipping Inc. 2011). Therefore, the company enjoys the expertise of the individuals with intensive level of experience.
Paragon Shipping Inc. has managed to maintain a strong customer relationship. This has been developed as a result of well developed reputation for its fleet. From the past operations, the company has developed its reputation for its dependable services. In the shipping industry, there has been, numerous cases on the loss of goods on transit between the port of origin and destination. Paragon Shipping Inc. has developed a close relationship with Allies; a company which has operated for a long period and which has developed its reputation. Allies have a high level of dependability and safety. This has helped Paragon Shipping Inc. establish strong relationships with its customers. By working together with Allies, Paragon Shipping Inc. has managed to develop close and effective relationships that result to quality services and dependability of its fleet.
The company has managed to apply the modern and cost efficient dry bulk vessels in its operations. In every business, the main aim is to maximize profits. However, this can only be maintained by minimizing the operational costs. Therefore, the organisation can maintain a high level of profitability. This may also help an organisation to improve the quality of services to its customers. The high quality modern and low cost fleet applied by the company has also helped in improving the level of safety in its operations. Since its development, the company has been commissioning reliable as well as cost efficient shipyards to perform the necessary repairs system upgrading and reconditioning their effort to upgrade its work. Given all these measures, the company has managed to improve on its operations significantly.
Due to employment of modern and cost efficient dry bulk vessels in its operations, Paragon Shipping Inc. can develop its competitive advantage. As already noted, the company is faced by several competitors. However, the company can develop a competitive advantage by reducing its operational costs. As a result, Paragon Shipping Inc. has managed to offer competitive prices for its services. By under pricing its competitors, the company is at a good position to retain and attract customers.
The operations at Paragon Shipping Inc. are characterized by a high level of efficiency. As a result, the company has managed to provide high quality services to its customers. Increased efficiency in operations has also helped the company in reducing its operational expenses.
Since its formation, Paragon Shipping Inc. has managed to keep an excellent safety record in its operations. Maintaining quality services and a high level of safety is one of the main objectives of the company. Safety is highly valued in the sea transport. This is because it involves high cost cargo which may lead to huge losses to the customers. Therefore, customers use the past safety records an organisation has in choosing the companies to through which to transport their goods.
Another strength of the company is based on the fact that it has managed to diversify on its operations. Diversification can help an organisation in surviving in a competitive market. This is because its overall profitability is not significantly affected in case one field fails. Paragon Shipping Inc. is involved in transportation of a wide variety of cargo. This involves fertilizers, as well as agricultural products. Therefore, the company has managed to minimize its risks.
Opportunities
Despite of the tough competition in the shipping industry, the company has some opportunities. These opportunities have favored the company over its competitors. One of the main opportunities of the company is its ability to grow very fast. Over the past, the company has recorded a very high rate of growth. It has managed to increase its customer base since it can access various ports across the world. Due to its inclination with Allies which has already developed its reputation all over the world, the company has managed to expand its operations very fast across the world. This has significantly helped the company in expanding its operations across the world.
Another opportunity of the company lies on the fact that the company has been in the industry for a long period. The company has previously recorded good performance in terms of expansion. For instance, the company has acquired several companies through mergers. This has significantly favored the company’s operations. The company has also managed to target best market opportunities in its networks. This has significantly helped the company in improving on its level of sales.
Threats
At Paragon Shipping Inc., there are several threats which have undermined the performance of the organization both in the short and the long run. These factors have posed a big danger to the organization in the effort to maximize its profits.
One of the main threats which pose a major danger to the company is the high level of competition. The company has been faced with a very high level of competition. This competition has led to prices wars, a situation which has led to falling in prices. This has posed a big problem to the organisation.
Weaknesses
Paragon Shipping Inc. has been over relying on Allies in many aspects in its operations. For instance, the company has benefited from the reputation already developed by the company in its market networks. This overdependence decreases the ability of the company to make independent decisions in its operations.
Corporate level strategy
As already noted, Paragon Shipping Inc. company is involved in various sectors of transportation. It provides shipment services to various industries including agricultural, minerals among others. Paragon Shipping Inc. works very closely with Allies in various areas. The company depends on Allies in making a number of strategic decisions. The company also benefits from the reputation of Allies Company which has already developed a strong brand in the market.
Decisions are made based on the positions held by each of the members in an organisation. The CEO holds the higher position in the organisation. Under the CEO, We have the Chief Information Officer, General Counsel Secretary, Head of Corporate Communications and the Chief Financial Officer.
The board of directors works closely with the heads in various departments in various activities including the executive compensation, information technology oversight as well as the overall governance.
Corporate Governance
The company believes that its corporate practices must adhere to set standards in the company which provides adequate protection to the shareholders. To meet this specification, the company has adopted a number of specifications for guidance. These include having majority of independent directors, adoption of a set of code of ethics and establishment of compensation and nominating committees (Hellenic Shipping News World Wide 2011). The directors are required to meet regularly to discuss critical issues facing an organisation.
Business level strategy
By making strong operations, logistics and innovations in its practices, Paragon Shipping Inc. has managed to maintain its differentiation strategy. One of the main strategies for the company is to provide safe and dependable quality services to its customers. This is aimed at helping the company to stand out among its competitors. This strategy of differentiating services plays a pivotal role in increasing the company’s market share bearing in the mind the high level of competition among the major players in the industry. The group of its experienced employees are determining in making innovations which cannot be easily imitated by their rivals in the market. However, the overall aim is to maintain high quality services for its customers. For instance, the company has put more efforts in ensuring that they retain and attract more customers.
By providing differentiated services, the company tends to create a picture of uniqueness of its services offered by the company to the public. Therefore, the company will be prepared to pay even high prices because they believe that the services offered are unique and cannot be easily provided by another organisation. For instance, Paragon Shipping Inc. provides customer friendly services and close contact with its customers. These aspects have enabled the company to differentiate its products from those provided by its competitors.
In implementing its strategies, Paragon Shipping Inc. has recognized the importance of understanding the needs of different types of customers. There is a great variation in customer needs based on a number of factors. This understanding has enabled the company to maximize the level of customer satisfaction.
By differentiating its products, Paragon Shipping Inc. has managed to maintain a competitive advantage. For instance, it has managed to attract and retain a large number of customers through its operations. By understanding the needs of its customers, the company has also realized a strong brand.
Financials
Financial assessment
According to the statistics compiled on December 31, 2010, the company recorded cash and cash equivalents of $ 34.8 million (Anonymous 2011). This was significantly low compared with the statistics recorded on December, 2009, which was approximately $134 million. The company also recorded a surplus working capital on December 31, 2010.
Due to its sufficiency in its operations and its liquidity, the company is determined to finance the full part of its capital requirement using the cash they make through its vessels. However, the financial position and independence may be affected in the future. This is because of the continued poor performance in drybulk market rates of the current economic situations.
The company’s net cash from operating activities was $ 80 million in 2009 which fell by about $20 million to $ 60.6 million (Hellenic Shipping News World Wide. 2011). “….mainly due to the lower cash flows from charter hire net of commissions and amortization of below/above market acquired time charters by $27.7 million and due to the increase in operating expenses by $3.0 million, partially offset by an increase in cash flows from other assets and liabilities by $8.2 million” (Shell Company 2010).
The company has also spent a significant amount of money in investing activities. For instance, the company invested $142.2 million for the year ended on December 31, 2010 (Hellenic Shipping News World Wide. 2011). For instance, the company managed to use some of these funds in acquiring Box Voyager, M/V Dream Seas as well as the Box Trader. The company also spent a significant amount of money to invest in constructing seven new building vessels.
Paragon Shipping Inc. is involved in operations in an industry which is capital intensive (Shell Company 2010). Therefore, it requires large amount of capital in order to survive in such an environment. In order to fund this large amount of capital requirement, the bank uses a long term bank debt. As a result, the company has for long been operating with a large outstanding balance in its operations. For instance, the company had an outstanding balance of $ 317.8 million by December 31, 2010 (Shell Company 2010). However, these credit facilities have maturities extending to the year 2010 and can be paid quarterly. The company is much determined in repaying its debts within the specified period. For instance, the company is planning to repay $31.5 of its debt (Shell Company 2010). This is aimed to ensure that the total debt is repaid back within the specified period.
Risk assessment
As already noted, shipping industry has been characterized by a few number of competitors who are usually in a very high level of competition with each other. However, Paragon Shipping Inc. has managed to win a significant proportion of the market share. The company has managed to differentiate its services from those provided by its competitors. Since there are no costs incurred by customers to shift from one organisation to another, the companies have managed to win customers by improving the quality of its services and also providing these services at a lower cost.
The company has also managed to retain a good financial performance. It has managed to lower the level of its long term debts significantly over the last three years. This increases the financial stability of the organisation. The company is also determined to use its finance generated through its fleet to minimize the level of debts.
From the above discussion, it is clear that Paragon Shipping Inc. has managed to implement successfully most of their strategies. This has enabled the organisation to attract and retain a significantly large number of customers. Through the employment of cost effective and efficient vessels, the company has managed to provide safe and efficient services. It has also managed to improve on its dependability.
Recommendations
This analysis has clearly shown that Paragon Shipping Inc. has managed to create a stable customer base by maintaining a good reputation and dependability among its customers. With the help of an experienced CEO who is a former employee of Allies, the company has managed to maintain a high level of performance in its operations. The company has also managed to meet effectively most of its set strategies.
Over the past, the company has recorded a good performance in servicing its debts. For instance, the company has honored the terms on its long term debt whose maturity extends between 2010 and 2020. This means that the company is worthy for credit facilities. The company is also determined to ensure that it finances most of its capital requirements using the cash generated by its vessels.
Reference List
Anonymous. 2011. About UPS. Web.
Hellenic Shipping News World Wide. 2011. Paragon Shipping Inc. Reports Fourth Quarter and Year Ended December 31, 2010 Results. Web.
Paragon Shipping Inc. 2011. Competitive Strengths. Web.
QuickMBA. 2011. Strategic Management. Web.
Shell Company. 2010. Shell Company Report Pursuant To Section 13 or 15(D) Of the Securities Exchange Act of 1934. Paragon Shipping Inc. Commission File Number 001-33655