Rio Tinto Iron Ore: Strategy to Address Increased Demand in China
MEMORANDUM
04 February 2013
To: The RTIO Management Team
From: Nino Cabaravdic, Senior Strategy Consultant
RE: How to respond to increased demand in China. Thank you for allowing us the opportunity to work with your company. As requested, we have evaluated Rio Tinto Iron Ore’s (RTIO) competitive position as the demand for iron ore is heavily increasing in China. Based on our research we have reached the following conclusions: 1. Take control of shipping by moving towards cost and freight (CFR), build RDCs 2. Provide customers with consistent high value ore 3. Engage in the Spot Market Corporate Strategy
“Our strategy keeps us focused on only the very best assets in the industry, and takes us ever closer to achieving our vision to be the leading global mining and metals company.”
The memo will proceed to tie the recommendations to RTIO’s corporate strategy of becoming the leading and global mining and metals company in four parts:
Regional Distribution Centers Help Control Shipping In China
First, the current logistics system that exists in mainland China operates with huge inefficiencies due to an extremely chaotic system of barge, rail, and road transport to get ore from the port to the buyers’ blast furnaces. To capitalize on the daunting task of reaching the fragmented market of small and medium sized buyers that keeps most competitors away from China, RTIO has the opportunity to set up a transport and logistics capability to deliver iron ore directly to a customer’s blast furnaces. RTIO can do this by investing in Regional Distribution Centers (RDCs) that would allow RTIO to store product close to Chinese ports since they served as a focal point for delivery and reception of ore. Along with this capital investment, it would be most beneficial for RTIO to also capitalize on CFR transportation. Taking control of the shipping would increase margins for RTIO because it could potentially negotiate better freight prices with transportation
04 February 2013
To: The RTIO Management Team
From: Nino Cabaravdic, Senior Strategy Consultant
RE: How to respond to increased demand in China. Thank you for allowing us the opportunity to work with your company. As requested, we have evaluated Rio Tinto Iron Ore’s (RTIO) competitive position as the demand for iron ore is heavily increasing in China. Based on our research we have reached the following conclusions: 1. Take control of shipping by moving towards cost and freight (CFR), build RDCs 2. Provide customers with consistent high value ore 3. Engage in the Spot Market Corporate Strategy
“Our strategy keeps us focused on only the very best assets in the industry, and takes us ever closer to achieving our vision to be the leading global mining and metals company.”
The memo will proceed to tie the recommendations to RTIO’s corporate strategy of becoming the leading and global mining and metals company in four parts:
Regional Distribution Centers Help Control Shipping In China
First, the current logistics system that exists in mainland China operates with huge inefficiencies due to an extremely chaotic system of barge, rail, and road transport to get ore from the port to the buyers’ blast furnaces. To capitalize on the daunting task of reaching the fragmented market of small and medium sized buyers that keeps most competitors away from China, RTIO has the opportunity to set up a transport and logistics capability to deliver iron ore directly to a customer’s blast furnaces. RTIO can do this by investing in Regional Distribution Centers (RDCs) that would allow RTIO to store product close to Chinese ports since they served as a focal point for delivery and reception of ore. Along with this capital investment, it would be most beneficial for RTIO to also capitalize on CFR transportation. Taking control of the shipping would increase margins for RTIO because it could potentially negotiate better freight prices with transportation