Feasibility Study on the Viability of Ocean Transport from the Dominican Republic to Europe
Name: Chrystel Vijzelman
Student number: 0789216
Date: Feb. 02, 2012
Executive SummaryStarting a business venture in a new commercial environment requires a preliminary awareness and understanding of such area before making a decision to invest in the identified business opportunity. The process of scanning a business environment is even intense when a company intends to venture in a different continent. Vertraco, a shipping line company located in Rotterdam is considering to expand its business operations via the transport of products, i.e., bananas, from plantations in the Dominican Republic to parts of Europe. Vertraco wants to start a new line of services to the Dominican Republic. The company wants to have a contract with the banana plantations located in the northern part of the island for the transportations of the bananas to Europe, particularly Zeebrugge and Rotterdam.
This study aims to provide a background on the situation of banana transportation in Dominican Republic so that Vertraco can make informed business choices when engaging itself in the business. Such background information will include the suitable ports to ship the goods, an appropriate inland transportation system as well as the business requirements that are essential in a Dominican business environment. The paper will use both secondary and primary data to determine if the business concept is feasible. Such data will also form the basis for drawing conclusions and suggesting recommendations for the company. The completion of the research project should enable Vertraco shipping company to make a concrete decision relating to the feasibility of starting banana exportation from the Dominican Republic.
To be able to achieve these objectives the paper will have to answer a number of research questions, questions on which the whole research is based on. The thesis is based on four main questions. The first has to do with the current size of the banana business in the northern part of the Dominican Republic. The second question has to d with the transport options available for transporting bananas in the Dominican Republic especially when it comes to the routes to take and the firms to deal with. The third question inquires about the costs and other elements for establishing the price for plantation owners. The last question asks about the best value proposition of the shipping company to offer the owners of the banana plantations.
The data the study collected, analyzed and interpreted was considered essential to answering the mentioned research questions sufficient to address the objectives of the research. The data amazed indicated that there is still enough room for any firm willing to begin oceanic transport of bananas from the Dominican Republic to Europe. The idea by Vertraco Shipping Company to start this business is, hence, supported by the collected data and the researcher found that the business idea is highly feasible. The study made use of documentary sources and interviews, which provided enough information for the conclusions made.
The study concluded that it is essential to pay particularly more attention to the smallest details to avoid unforeseen challenges, which might proof costly. The study also concluded that clear procedures have to be written and created with all the parties present. The main parties include the stevedores, ports, inland trucking, pre- trip inspection of reefer containers, shippers and maintenance of clip- on gen sets, of- arrangements with the port authorities, ships owners and captain, and of- documentation. The study found that the business idea by the shipping company is exceedingly viable especially because all the requirements are available.
Aside from the above conclusion, a number of recommendations were also made. The study thought that it would be best to examine the structure of cost for the cargo moving from Europe to be discharged in one of the South Coast ports, and then sail around the island to the Manzanillo port in north coast for loading the bananas. The study also recommended that the firm find a private stevedoring company willing to invest in port equipment in the north coast port for handling the containers and other activities related to the port activities. In addition, the study interviews led to the recommendation that certain compromises be reached to be able to answer to the needs of all parties, as such, a move would attract the banana plantation owners to conduct business with the company. These are just some of the conclusions the study improvised for the company.
Contents
TOC o “1-3” h z u Executive Summary PAGEREF _Toc316243112 h 2CHAPTER 1: INTRODUCTION PAGEREF _Toc316243113 h 5Introduction PAGEREF _Toc316243114 h 51.1Vertraco Shipping Company in Banana ocean transportation PAGEREF _Toc316243115 h 51.2Fishbone diagram PAGEREF _Toc316243116 h 61.3Problem definition PAGEREF _Toc316243117 h 71.4Thesis Objectives PAGEREF _Toc316243121 h 91.5Research Questions PAGEREF _Toc316243122 h 91.6Conclusion PAGEREF _Toc316243125 h 11CHAPTER 2: LITERATURE REVIEW PAGEREF _Toc316243126 h 12Introduction PAGEREF _Toc316243127 h 122.1Cultivation and distribution of bananas PAGEREF _Toc316243129 h 132.2Transportation of Bananas in the Dominican Republic PAGEREF _Toc316243130 h 142.3Targeted clients in the Dominican Republic PAGEREF _Toc316243131 h 162.4Competition in banana exportation in the Dominican Republic PAGEREF _Toc316243132 h 172.4.1Geest Line PAGEREF _Toc316243133 h 182.4.2NYKCool PAGEREF _Toc316243134 h 182.4.3Maersk PAGEREF _Toc316243135 h 182.4.4CMA CGM PAGEREF _Toc316243136 h 192.5The Organic Banana Industry in the Dominican Republic PAGEREF _Toc316243137 h 192.6Business strategies and industry analysis PAGEREF _Toc316243138 h 212.6.1PEST Analysis PAGEREF _Toc316243139 h 212.6.2Porter’s Five Forces Framework PAGEREF _Toc316243140 h 232.6.3Market mix PAGEREF _Toc316243142 h 272.7Value Chain Analysis PAGEREF _Toc316243143 h 272.8Conclusion PAGEREF _Toc316243144 h 29CHAPTER 3: RESEARCH METHODOLOGY PAGEREF _Toc316243145 h 30Introduction PAGEREF _Toc316243146 h 303.1Presentation of relevance tree PAGEREF _Toc316243148 h 313.2Research strategy and design PAGEREF _Toc316243149 h 313.2.1Research procedure PAGEREF _Toc316243150 h 313.2.2Research Design PAGEREF _Toc316243151 h 323.2.3Study population PAGEREF _Toc316243153 h 333.2.4Sampling PAGEREF _Toc316243154 h 333.2.5Primary and secondary data requirement PAGEREF _Toc316243156 h 343.2.6Data Collection Methods PAGEREF _Toc316243157 h 353.2.7Research Pitfalls PAGEREF _Toc316243158 h 363.3Presentation of the research Gantt chart PAGEREF _Toc316243164 h 373.4Table of Research Steps PAGEREF _Toc316243165 h 383.5Conclusion PAGEREF _Toc316243166 h 39CHAPTER 4: DATA PRESENTATION, ANALYSIS, INTERPRETATION AND RESULTS PAGEREF _Toc316243167 h 40Introduction PAGEREF _Toc316243168 h 404.1Presentation of collected data PAGEREF _Toc316243169 h 414.2The size of the banana business in Dominican Republic PAGEREF _Toc316243170 h 424.3Banana transport options for the Dominican Republic PAGEREF _Toc316243171 h 434.4Transport of bananas from the Dominican Republic PAGEREF _Toc316243172 h 444.5The state and capacity of the port of Manzanillo PAGEREF _Toc316243175 h 454.6Amount of Banana Freight offered by customers PAGEREF _Toc316243176 h 474.7Potential customers of goods shipped from Europe to Dominican Republic PAGEREF _Toc316243177 h 484.8Parameters for establishing the price for the banana plantation owners PAGEREF _Toc316243178 h 494.9The current and future state of banana transport industry in DR PAGEREF _Toc316243179 h 504.10Chapter Conclusion PAGEREF _Toc316243180 h 51CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS PAGEREF _Toc316243181 h 525.1Conclusions PAGEREF _Toc316243182 h 525.2Recommendations PAGEREF _Toc316243183 h 535.3Plan of implementation PAGEREF _Toc316243187 h 58Bibliography PAGEREF _Toc316243188 h 59Literary works PAGEREF _Toc316243189 h 59Internet Websites and Sources PAGEREF _Toc316243190 h 59APPENDICES PAGEREF _Toc316243191 h 61Appendix 1: Names and Contact Details of Clients Used in this Thesis PAGEREF _Toc316243192 h 61Appendix 2: Contact Details of those Interviewed: PAGEREF _Toc316243193 h 64Appendix 3: Interview questions for banana plantation executives PAGEREF _Toc316243194 h 65Appendix 4: Interview questions for Consulate of the Dominican Republic PAGEREF _Toc316243195 h 68
CHAPTER 1: INTRODUCTION Introduction
Vertraco Shipping B.V., spearheaded by its managing director, dhr. Ger Ubink has been considering implementing a new business idea that will be the subject of this thesis. The new business has been in conception for a year now and research has been conducted to verify its feasibility. It would be this paper’s task to do further research on the topic with the use of both primary and secondary data touching on such aspects as competitors, port capacity, the banana business and the possibility of transporting cargo from Europe to the Dominican Republic (DR). The information collected by Vertraco will likewise be used in this paper and consolidated along with the other data to be collected.
Vertraco Shipping Company in Banana ocean transportationThe company subject of this thesis is Vertraco Shipping B.V. It is located in Rotterdam and the line of business is the general management of Europe Caribbean Line N.V., which is a joint venture between Vertraco Shipping B.V. and a shipbroker, Vertom Scheepvaart-en Handelmaatschappij B.V. The company is likewise engaged in other activities of ship-brokering such as sales and booking for Europe Caribbean Line (ECL), operation of a reefer service (transport of cargo in refrigerated containers or with refrigerated ships) between Europe and Suriname, Guyana, serves as a managing agent of Ligne Guyane Francaise B.V. and forwarding and inland transport. ECL is a unique liner service trading between Europe and the Caribbean and north coast of South America. The services include FCL and LCL cargo, break-bulk and reefer cargo. Ligne Guyane Francaise B.V. is a shipping company registered at the island of St. Maarten.
The ownership of ECL is divided between Vertraco and Vertom with each one holding 50% share of the company. Its main line of business is carrying-trade and inland navigation. Vertom is in charge of the vessels and everything that has to do with them, e.g., fuel, crew, and insurance of the vessels. Vertraco is in charge of everything that has to do with the cargo on the vessels. Vertraco is likewise in charge of giving instructions to all agents assigned in the ports. Ligne Guyana Française B.V. is also a shipping company, which Vertraco owns 100%. However, it is currently in a dormant status with no activities being done.
Fishbone diagramA fish borne diagram is used to establish the viability of a business idea through the analysis of existing strategies that a company uses to penetrate a new market. The following diagram, therefore, is an analysis of the feasibility of Vertraco penetrating a new market, which is exporting of organic banana from Dominican Republic through ocean transport to Europe. The fishbone structure will make use of nature of business enabler, business barriers, entry strategy, profitability of the business, as well as, the structure of the market to come up with a strategy that would lead to the creation of a successful exportation business.
Figure 1
4. Strategy
Internal factors
Goal
Differentiation
capacity
Vision
Establish a new line service from the Northern part of of the Dominican Republic to Europe
Experience
Market potential
Customer preferences and demands
Client segmentation
Competitors analysis
DESTEP
3. Customer profile in DR
2. external factors
Problem definitionThe entry into a market that has an already defined market is a huge task that requires a lot of strategizing, planning and forecasting. Starting a business of exporting organic bananas from Northern Dominican to Europe may be a business opportunity whose viability should be established before plans are carried out to start the business. This paper seeks to assess the feasibility for Vertraco shipping company to export organic bananas between Dominican Republic and Europe. The researcher intends to find out what entails the business of exporting organic bananas from Dominican Republic and the logistics that are involved, and then look at the profits that are projected to be made from the business so as to establish whether the business is feasible and profitable or not.
Thesis ObjectivesThe purpose of this study can be summarized and broken down into four main objectives:
To identify the banana plantation owners that may be able to provide more ocean trade from the northern part of the Dominican Republic to Europe, in particular, Zeebrugge and Rotterdam;
To establish the key drivers and barriers for implementing the export plan by means of learning about: the potential market, the competition and the infrastructure of the DR.
To estimate the volume / weight of bananas shipping from the port of Manzanillo to ports in Northern Europe for the purposes of estimating the total volume of exports, and thus the volume of containers needed.
To define the best export strategy for Vertraco Shipping, which include formulation of practical business propositions (including the routes to Europe) of Vertraco Shipping to the plantation owners.
Research QuestionsThe research questions that this thesis aims to answer are as follows:
What is the current size of the banana business (e.g. number of companies, crop size, etc.) in the northern part of the Dominican Republic?
What are the banana transport options for the Dominican Republic particularly with the routes to take and which companies to deal with (nationally and to and from Europe)?
How does the national transportation of bananas in the DR take place? Are there special requirements?
How does the overseas transport from the DR back and forth Europe of bananas takes place? Are there special requirements?
What is the current capacity of the port of Manzanillo, as determined by the size and number of ship handlings per week, etc.?
What are the amounts of freight and key criteria offered by the (potential) customers? Which other shipping lines handle currently the transportation of bananas from the DR and more specifically the port of Manzanillo to Europe (competitors)?
Who are potential customers for shipping goods from Europe (more specifically Zeebrugge and Rotterdam) to the DR?
What are the costs and other parameters for establishing the price for the banana plantation owners?
What is the best value proposition of Vertraco Shipping to offer to the banana plantation owners?
The answers to all these questions are necessary to enable Vertraco to measure the feasibility of its objectives. Aforementioned questions are to be answered by the end of this thesis given the presentation of data, the methodologies and analysis applied to the collected data and the findings from the analysis.
Conclusion
This chapter sets the guideline that the entire research paper will be based on. The background information provided, research objectives highlighted, thesis objectives as well as the definition of the problem will form a basis that will determine the success of literature review, the data collection and the presentation of the data. Research questions are helpful in collecting relevant data. They help guide the presentation of data, as well as, the drawing of conclusions and development of recommendations.
IntroductionThis paper is a feasibility study. A feasibility study is a controlled process for highlighting opportunities and issues, describing situations, determining objectives, pinpointing successful results and reviewing cost ranges and advantages associated with a number of alternatives for solving or addressing problems. A feasibility study, in this case, is used to support the process of decision-making based on the analysis of cost benefits of the actual project or business viability. This kind of study is carried out during the deliberation stage of the development of the business cycle before commencing towards an official business plan. It is a tool of analysis that includes limitations and recommendations, which are used to assist the people making decisions when determining whether a business idea is viable.
To achieve this goal, the article will make use of three business models, which include Porter’s Five Forces Framework, PEST Analysis and Market Mix Frameworks. A PEST analysis involves analyzing the external macro-environment that has an effect on all companies. On the other hand, “Porter’s five forces” is one of the most commonly used frameworks for the purpose of business strategy development and industry analysis. Porter declared that these five forces model must be used at industry. The concept of market mix is very crucial for shipping companies due to the entities of place and price, which must be properly related to realize a profit. The place of production and that of sale are very far from each other.
The following literature review re-evaluates earlier works in the research topic to give the study a firm base. Relevant educational materials consulted in relation to banana oceanic transportation between Dominican Republic and Europe include books, journals (both electronic and print), internet sources and working papers where applicable. This chapter is expected to bring Vertraco Shipping Company and associated companies, banana plantation farmers as well as Dominican and European governments up to date with current literature on the viability of the use of ocean transport to do business among different nations and will form the basis for subsequent research goals such as the justification for future research in this area.
This study is geared towards establishing the feasibility of the new scheduled service and to know if the idea for the new business deal is practicable. Most of the literature that was consulted in the process was to justify whether the business idea is viable or not. Vertraco Shipping Company plans to have a weekly service from Manzanillo to Portsmouth and Rotterdam, for a period of three years. The intention of this offer is to get a contract, which is valid for at least one year. The minimum volume required is 150 x 40ft HC reefer containers of bananas per week. The service will be run with three container vessels, which are scheduled to arrive in Portsmouth and Rotterdam every Monday. Since Dominican Republic is a large producer of bananas, Vertraco Shipping Company intends to rely on the constant supply from this nation to feed Zeebrugge in addition to other European markets.
Cultivation and distribution of bananasOn the organic banana plantations in the Dominican Republic, soil fertility is maintained and enhanced by the use of organic fertilizers. These organic fertilizers consist of coffee husks mixed with animal dung. The banana harvest starts when the bananas are still green. If the bananas were left to ripen while still attached to the banana plant, they would be overripe and inedible when they reach their market, which is most of the time on the other side of the globe. The green bananas are removed from the stem and then washed in large cold-water baths. The purpose of the washing is to remove any insects and plantation debris, to cool the bananas down and to remove latex from when the banana was cut from the plant. The period from the harvest until the delivery to the shop retailer is twenty days.
The transportation of bananas is done with specialized refrigerated containers on container ships. The bananas are loaded into refrigerated cargo vessels or refrigerated containers and shipped green at a controllable temperature of 14.5 degrees. Temperature controlled logistics is of great importance to avoid premature ripening of the bananas. The bananas are imported in boxes, because this way of packaging creates a more convenient process of transportation. After the ocean voyage from the tropics, the bananas are unloaded from the vessels and then taken immediately to a ripening center. The bananas are then stocked in hermetical ripening rooms for a period of five to eight days at a temperature not exceeding 14.5 degrees. This temperature stimulates a homogeneous ripening of the bananas of a different size.
In the ripening centers, the bananas go from green to yellow. The ripening rooms are airtight and filled with ethylene gas to induce ripening. The temperature in the ripening centers has to be monitored very accurately. If the temperature is too cool, the bananas will catch a chill and their skins will first turn to a dull yellow color and then black. If the temperature is too warm, the bananas will ripen too quickly and this will result in decreased shelf life. The retailer can also order ungassed bananas, and then the bananas will show up at the supermarket fully green. Green bananas that have not been gassed will never fully ripen before they become rotten.
Transportation of Bananas in the Dominican RepublicFor a long time the main export, products of the Dominican Republic were sugar, coffee and tobacco. However, the service sector has taken the place of the agriculture business as the economy’s largest employer. Regarding the total work force, the service sector makes up for 60.2%, the industry 15.5%, construction 11.5%, agriculture 11.3% and mining 1.5%. According to the Dominican Republic’s Centre for Exports and Investments, about 35% of Dominican farm exports are bananas. Their most important buyer is the U.K., followed by Belgium, Sweden and Germany. The Dominican Republic is not an ideal maritime destination due to the inconvenience of its ports and the problematic entry procedures.
The infrastructure in Dominican Republic is well developed with most of the ports such as Santa Domigo, Haina, and Barohona among others being able to handle different kinds of cargo. Manzanillo port is among the largest ports in the republic and deals with all types of cargo within and outside this republic. This port also lies within the six maritime lines operating in the republic, which transport goods to Europe and other parts of the world. This well developed port development in Manzanillo has been a major attraction for many shipping companies, which intend to operate between Dominican Republic and other close destinations.
On the other hand, the ground transport network in this republic is well developed with over 5,000 kilometers of highways 15,000 kilometers of rural roads. This makes it possible for shipping companies to be in a position to move their merchandise from their places of production or harvest to nearest ports. All ports in the republic are well furnished with a strong road network thus no delays are expected when moving goods from production areas to the ports. As such, banana plantations in Dominican Republic are well connected with the major highways by rural roads thus moving bananas from these plantations to the ports is not a major challenge.
The transportation of bananas from plantations to ports is usually done by container cargoes, which are provided by shipping companies in this nation. In some cases, banana plantation owners have their own containers and charge some fee to their customers to transport them to their preferred ports. Trailers are used to move these containers from the plantations to the ports since the Dominican Republic does not have a strong railway transport system that could have been cheaper to move containers from the farms to ports. However, it has been noted that the use of trailers in the movement of cargo from different areas to ports has increased the costs of freight because most of these trailers and trucks are individually owned thus expensive to hire. However, more shipping companies are sprouting up as a solution to increased cost of road transportation as opposed to oceanic transportation of the same products.
Vertraco Shipping Company wants to use the port of Manzanillo for the shipment services because the majority of the plantations are located very close to the port. This will result in a shorter inland transport period from the plantation to the port of loading. If the service offered is from one of the southern ports of the Dominican Republic, the company will have too much competition from other shipping lines such as Maersk, Zim and CMA CGM. The transportation of bananas through Manzanillo port is cheaper compared to southern ports, which have high inland transportation costs. The inland transportation costs for the bananas from the plantations to the southern ports are between $800 and $1000 per container. The transportation time is between 6 and 8 hours. To transport the bananas from the plantations to the port of Manzanillo is between $100 and $200.
The goal is to ship 150 x 40ft HC reefers on a weekly basis and in the prime of the season a minimum of 200 x 40ft containers. The company also plans to ship a minimum of 25 x 40ft return (return) cargo on a weekly basis. The best method to transport the bananas overseas would be with the use of a 500 TEU vessel. However, there are no 500 TEU vessels available, which can connect 200 reefers. The reefers need to be connected constantly, because of the special transportation methods used for bananas. In order to ship the reefers, the company will have to use vessels between 1000 and 1200 TEU (Twenty-foot Equivalent Unit). These large vessels are also necessary because they have a sailing speed between 19 and 21 knots. Smaller vessels have a sailing speed of 16 knots, which would result in the demand of more vessels and a higher cost price.
Targeted clients in the Dominican Republic
Vertraco Shipping Company intends to deal directly with the farmers of bananas in this republic so that there is a surety in the freshness of the fruits. Buying the bananas directly from farmers is also cheaper as compared to purchasing them from wholesalers. The target group of clients of Vertraco shipping is the banana plantations in the Dominican Republic. The client list consists of Savid Dominicana Sa, Plantaciones del Norte, Grupo Banamiel, Productos Dominicanos, South Banana Fenix, Finca Bananera and Banama. Most of these clients are found in the province of Valverde in the Dominican Republic whose main economic activity is agriculture with bananas and rice being the main products of the province.
The red-highlighted province in the map above is the province of Valverde in the Dominican Republic. It situates four of the nine potential customers. Santa Cruz de Mao or simply Mao is the head municipality of the province of Valverde. The main economic activity in the province of Valverde is agriculture. The main products in the municipality Mao are rice, bananas and plantains.
Competition in banana exportation in the Dominican Republic
The organic production of bananas is much easier in the Dominican Republic and less input is necessary compared with other countries. In this Republic there are hardly any pests and diseases present that affect banana plantations elsewhere. This makes the cost of the products cheaper compared to other production areas, which have the influence of banana pest and diseases. The choice of this island as the source of bananas for supply in Europe is well informed when comparing the total cost of production and shipment against the expected sales. On the other hand, Vertraco Shipping Company has a comprehensive background on the banana market in most parts of the European countries. This places the company at the best place in establishing where to ship these products.
Despite the competitive placement of Vertraco Shipping Company, the banana exportation to Europe has many players who have already established customers. The high production of agricultural products of the Dominican Republic has called for many shipping companies investing in the oceanic transportation of these agricultural products to different destinations in the world. Some of the anticipated main competitors of Vertraco Shipping Company in the banana business include:
Geest LineGeest Line first started out as a horticultural business in the U.K. The services of Geest Line run exclusively to the Caribbean. Currently it ships bananas from the northern part of the Dominican Republic to Europe. There are also two trips per week from Le Havre (France) and Portsmouth (the UK) to the port of Manzanillo, Dominican Republic. However, it has been reported that Geest Line is currently not in the best financial shape thus an opportunity for Vertraco to make an impact.
NYKCoolNYKCool is located in Stockholm, Sweden. NYKCool is an operator of specialized reefer vessels. Its fleet consists of about fifty ships all between 380,000 and 760,000 cbft. All ships operate in all major reefer trades on a global basis. The main activity of NYKCool is to operate as carrier of fresh fruit and other perishables.
MaerskMaersk Line is a Danish shipping company and is the largest in the world. Its brand is a major threat to new companies intending to start operations in which it operates. Its international recognition should be the main worry for companies like Vertraco Shipping Company.
CMA CGMThe head office of CMA CGM is located in Marseille, France. It is the third largest shipping company in the world. CMA CGM consists over a fleet of 360 vessels, and serves over 400 ports of call.
The Organic Banana Industry in the Dominican Republic
The organic banana industry in Dominican Republic is an advancing sector with a very promising future thus the increased interest of many shipping companies such as Vertraco. The concept of return cargo from the European countries is also very influential in the success of shipment of banana freight from Dominican ports. The business idea cannot be sufficiently profitable if there is no possibility of increasing the amount of return cargo. That is why it is also important to find out when exactly this young business idea will be at its most profitable. Currently there are not a lot of clear options to gain return cargo for the Dominican Republic.
The task of learning about the organic banana industry of the Dominican Republic is done to know how and when this business can be profitable to Vertraco by profiling the main suppliers on the market for more ocean trade concerning bananas from the northern part of the Dominican Republic to Europe. It is also necessary to be able to identify the main obstacles in the new business idea as well as know the most logical distribution process from the port of Manzanillo to Europe. It will also help in defining the best entry strategy for Vertraco Shipping and how Vertraco can attract more clients for return cargo.
The majority of the bananas grown in the Dominican Republic is for export. The organic certified bananas are being shipped to the European Union, North America and Japan. Currently, the majority of the bananas shipped from the Dominican Republic are targeted at the UK. Demand for organic certified bananas is almost certain to increase, especially in Northern Europe. However, production constraints (the result of endemic disease problems in traditio
