EXECUTIVE SUMMARY

Singapore’s sea transport industry is among the flagship industries in Singapore, handling over 28 million 20-foot
equivalent units in 2010. It is categorized into three categories: (1) Bulk shipping, which carries large parcels of raw
materials and bulky semi-manufactures; (2) Liner shipping, which transports manufactured and semi manufactured
goods and small quantities of bulk commodities; and (3) specialized shipping which transports difficult cargoes such as
cars, forest products, etc.

Against this backdrop, Porter’s Five Force analysis was used to examine the liner shipping industry in Singapore,
and the following findings have been observed:

Intensity of rivalry (HIGH): With more than 80 players, the liner shipping industry’s high level rivalry intensity is
exacerbated by the fact that Singapore-being a small city state with limited domestic consumption-has a
relatively small, albeit sophisticated, market locally. Thus, it soon experiences saturation and stagnant growth,
despite having one of the busiest ports in the world. Furthermore, with low level of service differentiation and
switching costs, the players’ margins may have suffered; and this leads to the several organizations lobbying the
government for a form antitrust exemption for the industry players; which is eventually approved by the officials
for a limited time period.

Bargaining power of buyers (HIGH): Due to the burgeoning exports and imports activities in Singapore, a large
number of buyers have surfaced. In addition, although the possibility of vertical integration looks promising,
M&A activities have been rather modest. These two factors have essentially reduced the bargaining power of
buyers. By contrast, liner shipping companies are required by law to disclose their prices and services to the
buyers, and due to the low service differentiation, high competition and different prices offered, buyer’s price
sensitivity have increased which lead to increased buyers’ bargaining power.

Threat of new entrants (MODERATE): Establishing network with transport and logistics chain is a time
consuming process. Besides, requirements for large vessels in some cases make this industry capital intensive.
These factors increase the barrier to entry to a moderate level.

Bargaining power of suppliers (LOW): Due to the capital intensive nature of the industry, the shipbuilding,
labour market and marine fuel companies are its major suppliers. The shipbuilding industry was until recently
been dominated by Korea and Japan suppliers, however, the emergence of new players, most notably China,
India, Vietnam, Philippines and Brazil has created rising competition among suppliers. With the shipping
companies given the option of choosing where they would want to register their company under the de-flagging
process, availability of cheap labour has been their main motivation in making the choice. Furthermore, with the
prices of oil expected to go up in the future due to growing energy requirements of the world and depleting
supply, the bargaining power of this supplier is strong.

Threats of substitutes (LOW): The two closest substitutes for liner shipping would be air cargo and road
transportation. Road transport (via Malaysia) is primarily used for short-distance transportation, while air cargo,
despite its superior speed advantage, comes with a sky-rocket price tag as compared to liner shipping. It is
unlikely that these two substitutes will pose any significant threats for the liner shipping industry in the
foreseeable future.

Based on the above analysis, it is likely that the main drivers of profitability for the industry include low bargaining
power of suppliers and weak threats of substitution. On the other hand, the currently moderate threats of new entrance
are expected to increase, while rivalry remains strong in this industry with high buyers’ bargaining power causing a
squeeze on the profit margins.

Recent industry trends have geared towards addressing the profitability issue, as companies move to achieve economies
of scale by increasing the capacity as well as the distance travelled. It has also been observed that cartels or conferences
are allowed to be formed to strategically set price. However, since the cartel does not impose much pressure for the
members to commit, M&A has been increasing lately as a better solution to control the market.