Business Management Assignment Evaluating Issues Faced by John Good Shipping in UK
Task: This business management assignmentis designed to give students the opportunity to consider some of the issues which face small business owners who wish to grow their business and to further consider how government policy might be designed to support SMEs to grow.
You will be required to undertake a detailed evaluation of a small or medium sized enterprise (SME) sector/industry of your choice.
You will be required to conduct a critical evaluation of:
1) The issues facing small business owners in the pursuit of business growth
Some of the issues you may consider are:
Note: (Please refer to only 1 theme/issue)
Access to finance and appropriate government support measures
Access to international markets
Availability of skilled labour
Acquisition and implementation of technology
Marketing strategies using social media
2) Any government support measures that may be available to help the business overcome the
Then you should provide a set of recommendations as to how government policy might be informed to support SMEs to achieve their growth objectives.
The end result should be a clear, reasoned argument for recommendations as to how government policy can best support SME owners to achieve growth.
According to the U.K. government, it is stated herein business management assignment that SMEs or small and medium-sized enterprise consists of micro, small and medium-sized businesses. A microenterprise is one which comprises of less than 10 employees, and the yearly revenue is less than € 2 million, small-sized business consists of less than 50 employees, and an annual turnover is 10 million, and medium-sized enterprises contain less than 250 employees with an annual turnover of 50 million (Changand Lai, 2017). SMEs accounts for 99% of the total business sector, which includes 5.6 million businesses in the U.K. At the beginning of 2021, it was anticipated that 5.6 million businesses operating in the U.K. belong to the private sector.
The aim of the report is to address the issues that are commonly faced by the business owners of the SMEs operating in the U.K. The issues cause hindrance to the growth of the SMEs, and the report contains how the government regulations are framed that are helpful in designing and supporting the business operations of the SMEs to help them to grow. For this report, an SME based in the U.K. named John Good Shipping which is a logistics company, is selected. The two prominent issues faced by the owners of John Good Shipping in operating its business are in the form of fluctuations in the freight rates recently and prices of the bunker remaining at lower levels. The U.K. government is trying to support the logistics industries by helping John Good Shipping to overcome its two significant challenges. Another company, Kahan Logistics from Australia, is selected to discuss the contemporary issues faced by this company in its home country.
The research procedure undertaken is a secondary data collection process wherein existing literature and websites are used to undertake the contemporary issues faced by the business owners of SMEs across the globe.
a) Explanation of 2 sub-issues faced by SME owners in pursuit of growth in U.K. business
The two major issues faced by John Good Shipping are as follows:
• The severe fluctuation on freight rates: The company has been facing huge fluctuation on freight rates which, makes it difficult for the company's freight forwarders to maintain rates of long-term stability and contract for its customers that have been preferring to yield advantages of the spot market. As stated by Regli and Nomikos (2019), the rate of freights is determined by demand and supply. It is also believed that market forces to be the factor responsible for fluctuations in freight rate. Since carriers continue in focusing on scale economies as well as unit cost with important additional tonnage that is to be delivered still against the backdrop with reduced volumes hence, this situation is unlikely to change within a short period without having to be any aggressive curtailing of laying and capacity of acquiring more vessels through shipping lines. As opined by Liu and Chen (2018), prices have been driven through a commodity boom with a high demand of congestions and shipping at ports since many parts of the country is recovering from the hit of the pandemic since the U.K.'s expectant demand and available supply of the commodity make the drive-in rates.
• Prices bunker remains significantly at lower levels: It is believed that bunkers price has remained to be at lower levels at the starting of the year that helps the carrier counteract to such situation to a certain degree. As said by BAER and Abdullah (2019), BAF is referred to as a floating part of charges related to sea freight that represents additions caused due to oil prices. Moreover, due to current situation of political as well as relationships with major countries producing oils casts uncertainty on the stability of long-term. The political disturbances cause many problems to the organization, which result in a change in the company's policy and its plans as per the government intervention on trade policy. Hence, this problem let John Good face many problems, which also resulted in incurring fewer revenues from its operations. The main problem associated with lower bunker price is its low velocity and fuel of high density. As mentioned by Thomet al.(2018), the volatility of bunker price, fuel quality, and credit risk is said to be real issues that impact bunker suppliers and ship operators as per the recent study. This results in acquiring loss by John Good due to lower bunker price. Since John Good is more affected by bunkers suppliers, which have to carry the burden of right cost throughout the chain of supply, therefore, these are the issues that have been faced by John Good that limit their business operations expansion in global levels and also in making major developments.
b) Discussing existing measures of U.K.'s governments to help businesses overcome the issue faced by SME
The U.K. government has been implementing many laws and policies concerning the issues faced by JGS on lower bunker prices and fluctuation in freight rates. As stated by Choi and Yoon (2020), the U.K. government has made an initiation to reduce the emission of carbon to some extent by introducing policies and carbon mechanisms pricing as well as measures related to energy efficiency. It has been advised to the government of the U.K. to force the companies in lowering the costs of shipping. Due to an insane hike in the price of shipping tariffs that have been killing as well as punishing the trade and price of gifts higher and products. As mentioned by Psaraftis(2019), lower carbon emission is taken to be an integral part by most of the countries as it would minimize the deaths rates caused due to air pollution as it also helps the country to cause less pressure on the system of healthcare. The factors that lead to the rise of freight rates are congestion of ports to the growth of e-commerce, to shortage of labour. To overcome the issue caused by fluctuation of freight rates, the U.K. government has come up with policies for adjusting freight rates which are as follows:
• With an increase in freight rates with a higher relative within the markets or routes along with higher volumes demand that aims at acquiring many possible revenues from freight rates.
• The second policy is quite similar to the first policy, where higher freight rates decrease within the market or routes along with higher volume demand aiming to attract many possible freight rates.
• Lastly, the final policy has a slight variation on freight rates with demand volumes independently within particular markets or routes.
However, the pandemic has also caused a major negative impact on the trade between countries, due to which freight rates have been fluctuating. As discussed by Dinget al.(2018), it says that there has been a global imbalance or climate change contributing to the rise in freight rates. The government policy of U.K. transport made concerning freight transport are designed to be in a relatively light touch, which has been set at the U.K. level within the Review of Logistics Growth. The main aim of bringing reforms in freight transport is to identify the economic barriers. The document has outlined five major core areas where the government has been facilitating growth and assistance along with competitiveness in the logistics industry; there are as follows:
• Providing the logistics industry with greater confidence while investing in the short term through removing barriers to plans for sustainable development in logistics with the focus mainly on SRFIs acting as a facilitating shift model from roads to the railway for long distances.
• Improving the capacity of long-term resilience, performance, and congested railway and road networks that improves the ports connectivity.
• Promoting the sector image at a local level
• Reducing unnecessary regulations
• Retaining and attracting recruits of high caliber.
a) Discussion and evaluation of the issues faced by SMEs concerning business growth The company that has been taken into consideration having similar issues as faced by John Good Logistics is Kagan Logistics which is based in Australia. As stated by Crainic, Perboli, and Rosano (2018), most of the companies face similar issues related to freight rates fluctuations which results into charge higher prices on goods. The issues faced by Kagan Logistics are as follows:
• The challenges of growing demand due to freight tasks: Due to the ease of restrictions after the Covid wave has contributed to rising freight rates. The soaring demand in Australia amid the stimulus packages has been the factor for the rise in freight charges in Kagan Logistics. As opined by Choi and Yoon (2020), the freight rate is considered to be a requested price made for cargo transport from one destination to another. The rate of the freight demands upon the accountable weight, destination, and selected transportation mode. The cargo cost of Kagan Logistics has increasingly been high every day, which has resulted in high freight rates. It leads to cause delays and build costs of the organization, which may result in the charging higher prices from the suppliers and dealers. Moreover, an outbreak of the pandemic has also resulted in major losses with the logistics company. As discussed by Kilian and Zhou (2018), the logistics industry is the ones that were mostly affected by the pandemic as transportation was stopped and logistics business was stopped. Hence, in this way, the Kagan logistics also suffered from high demand in freight tasks.
• Fluctuation and high bunker price: Due to the rise in transport volume and ship capacity, there has been a rise in bunker price of Kagan Logistics. As stated by Choi and Yoon(2020), the fluctuation is also due to long waiting hours outside ports. Bunker fuels are used by maritime vessels to power their motors which might not be the regular diesel. The price of the bunker in Kagan Logistics is determined by the availability of the bunker within the market, schedule of logistics among the suppliers. It has been said that bunker price is generally higher in case the purchaser of bunker fixes any bunker closer to the delivery date. However, it is said to fix the bunkers before seven days to vessel the ETA. As mentioned by Kilian and Zhou (2018), there might be other reasons for the rise in bunker price, which are speculation on crude market, capacity constraints, refining priorities, and inherent difficulties faced during vessel operators, which may be either hedging fuel or storing creates distortions in price that creates an impact on the prices of bunker oil. The issue with Kagan logistics has been aroused due to the price determination like availability of a product, logistics availability, and cost. Hence, in this way, the company has been tackling the issue related to fluctuation in bunker price as it is a derivative for crude oil.
b) A detailed explanation of the issue to help businesses overcome challenges faced The government of Australia has been applying various measures to solve the issues faced by Kagan Logistics, among which is bunker hedging. As said by Thomet al.(2018), bunker hedging refers to the contraction of traditional management risk of financial nature as well as analysis of fuel price. This has been used by the Australian government to reduce as well as eliminate the company's exposure concerning fluctuation costs off the bunker. Hedging bunker price is considered to be within the form of risk management which is continuously in the process, including traditional tasks of managing risk. Moreover, the Australian government has also been setting up risk management as a strategy within the action plan. Prolonging of analysis of fuel price concerning bunker hedging contributes to price forecasts. As discussed by Crainic, Perboli, and Rosano (2018), Covid-19 has affected most of the parts of the world where logistics were also among the ones that were severely affected by pandemics due to blocked transportation routes in many parts of the world. Furthermore, the government also applies industry-specific strategies and tools for fixing bunker price at a particular period and level that enables the development of hedging bunker strategy decreasing the pressure within the company’s budget to bunker. As said by Kilian and Zhou (2018), reforms and policies introduced by the government make it easier for a logistics company to tackle the challenges and help them earn profit. Since trade is also one of the important sources of economy for the Australian government, the policy measures that can be introduced apart from hedging bunker price is by attracting investments through legally- binding commitments within preferential and multilateral trade. The government also offers provisions mainly on services, competition policy, and intellectual property that can be significantly affected by both investment and trade. As mentioned by Kim (2021), trade policies are important for organizations and other countries partnering in trade. The main objective of trade policies is to restrict foreign exchange levels and promote exports that are being available within the government. To overcome the issue of increasing demand in freight, task the government of Australia has been implementing the measure of IFAM for the temporary basis for helping it restore critical supply chain at a global level which has been impacted due to Covid-19 measures of containment over the world. This helps in reducing the Covid-19 impact caused on the international chain of supply. It also helps business to get their respective products through flights and customers from an international level. As discussed by Ranjanet al. (2018), IFAM enables in identifying freight space demand for outbound flights as well as inbound flights that work with industry and airlines for increasing flights and also restores chain of supply that has been broken during the time of the pandemic. The freight sector is being supported by delivering plans as well as strategies across the different levels of government for the past decade (Heroldand Lee, 2017). The Australian government also provides a framework concerning freight known as Freight Performance that delivers a platform for dramatically an efficient system in freight for the sector that affects property and lives of Australian people. Hence, in this way, the Australian government played a significant role in solving the issues related to demand in freight tasks and fluctuating bunker prices.
Based on the above discussion, it can be concluded that the logistics industry of both the U.K. and Australia have been facing Haulage Industry Overhead costs or high cost of operations. The SME logistics sector is not such an industry wherein the overheads are low not it is a sector where the direct costs and the indirect costs can be grouped accordingly to be paid off easily on a monthly basis. The costs attributed to the logistics sector encompass hourly payment, which makes a large difference in the upcoming hike of the fuel costs. Both the U.K. government as well as the Australian government are facing major problems in the logistics sector for the year 2021 in the form of lack of availability of setting up a warehouse, sky-rocketing container prices, port congestion and shortages of truckers that are making the global transportation and shipping industry to come to a halt as well as come to terms with the dichotomy with the rising demands of goods.
The following are the recommendations suggested to the business owners of SMEs suggesting as to how the government policies can support the growth objective of this business in the U.K.-
• Seek out new financing options for the SMEs: A decline in sales makes it difficult for SMEs to extend services and offer products to service their existing debt capacity. The business owners of SMEs should seek out their existing capital sources like banks, financial institutions to be more sympathetic towards the terms and conditions of the debt (Gregson, 2017). Any kind of quid pro quo for concessions like personal guarantees should be examined carefully. Businesses must also consider finding out new financial solutions. The U.K. government has recently announced developing a fund amidst the Covid-19 pandemic in the name of Coronavirus Business Interruption Loan Scheme (CBILS) that shall extend loans up to 5 million pounds in the form of the term loan, overdraft, asset finance and invoice finance to the SMEs that are applicable to the relevant SMEs in the U.K.
• Reducing and slowing down the cash outflows: The business owners of SMEs must seek to negotiate the main terms of the contract. Direct concessions can be asked for discounted rent, service charge reduction, a rent-free period and a rent deferment wherein the liability to pay off the rent does not go off; however, a payment plan might be developed for agreeing between the parties for making deferred rent (Khanand Qianli, 2017).
• VAT: Creating a quarterly VAT payment plan and inquiring about additional discounts from HMRC. The government has announced a postponement of VAT payments so that payments due between March 20 and June 30, 2020, no longer have to be made by March 31, 2021 (Baket al., 2019). The business owners of SMEs can cancel all direct debit mandates, but they need to make sure they get all the required statements on time. Using this grace period wisely and shall ensure that the SMEs will be able to pay off any debts that they may incur during the grace period.
• Acknowledging the duties assigned to the company: The Coronavirus will not relieve directors of their legal obligations to companies. These obligations, codified in the Companies Act 2006, are as follows:
Act within the limits of authority
To promote the company's success
Make independent judgment
To exercise reasonable care, skill and diligence
To avoid conflicts of interest (Halland Pesenti, 2017)
Not to receive any benefits from third parties
Express interest in the proposed transaction or agreement.
In particular, while companies are solvent, the second obligation requires directors to act in a manner that they believe will benefit the shareholders of the company as a whole. In fulfilling this obligation, the Board of Directors must consider, among other things, the long-term implications of a decision and the need to improve the company's relationships with suppliers and customers.
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