NEPTUNE-APL MERGER SEEN AS A PLUS FOR SHIPPERS
Byline: Stuart Chirls
NEW YORK — The latest mega-merger among oceangoing freight carriers will mean improved service for textile and apparel shippers, executives said.
Neptune Orient Lines (NOL) of Singapore said it plans to buy APL Ltd., the second-largest American-owned container-shipping company and the leading transporter of apparel, for approximately $825 million.
APL, formerly known as American President Co., operates the largest domestic network of intermodal trains transporting containers from U.S. ports.
The Oakland, Calif.-based intermodal specialist also is a major operator of vessels on the U.S.-Asia shipping routes, posting sales of $2.74 billion in 1996.
NOL is strong through the water, while APL is known mainly in the U.S. as a “land bridge” carrier, one that transports containers from ports to inland terminals for local distribution, said Hubert Wiesenmaier, who as executive director of the American Import Shippers Association (AISA) negotiates shipping rates with carriers on behalf of 270 apparel makers.
Wiesenmaier noted, “The deal certainly broadens NOL’s service tremendously. All the talk these days is about the need to be global. It’s a fact of life.”
Wiesenmaier said he expects the merger to give shippers more flexibility in sourcing, but he warned that the shrinking number of carriers could be felt by shippers in the years to come.
“They [the shippers] will have broader options because of the all-water service,” said Wiesenmaier. “The worldwide situation among carriers is becoming very competitive, but shippers can’t expect that their rates will go down forever. Something has to happen as far as carriers’ operating efficiencies are concerned.”
Since the Eighties, high labor costs for U.S. companies and more efficient operations abroad have allowed foreign operators to slowly take over the industry, with the shipment of U.S. goods now mostly handled by foreign-based lines.
With consolidations of duplicate services, the deal would double the size of NOL, which had sales of $1.36 billion last year, while cutting costs and expanding the carrier’s route system.
NOL focuses on the Europe-Far East traffic, as well as Far East-U.S. trade by way of the Panama Canal.
The merger comes at a difficult time for seagoing carriers, as the introduction of giant ships and lower-than-expected freight traffic has plagued the industry with excess capacity and falling rates for more than a year.
“We could have survived on our own, but it would have been very difficult and would have required both investment and time,” remarked Timothy Rhein, president and chief executive officer of APL, in a statement.
“Merging with NOL gives us a quick jumpstart into meeting these goals,” said Rhein
“We are in a highly competitive industry, and we have to be exceptionally cost-effective and offer customers broader service coverage,” said Lua Chen Eng, deputy chairman and ceo of NOL.
Meanwhile, Wiesenmaier said the merger mania could leave some smaller carriers out in the cold.
“Large shippers seem to prefer to deal with one or two carriers globally,” he noted. “Who are the weaker players in the Pacific going to partner with?”
Wiesenmaier also pointed out the north-south carriers serving the busy routes to and from South America, which is frequently seen as a ripe market for domestic apparel makers, could face more complex problems.
“These carriers have two options: Find a partner or become more efficient. But since they serve north-south traffic, these companies will have to find two partners, one for the Pacific and one for Europe” said Wiesenmaier
In other shipping news, negotiations of 1997-98 rates are going on between AISA and the Asia North America Eastbound Rate Agreement (ANERA), a consortium of major carriers.
After two meetings, ANERA is expected to present the final details of a new contract agreement shortly.
The carriers have talked for some time of raising rates, and while Wiesenmaier wouldn’t disclose the specific figures of his group’s proposal, he has said in the past that AISA wouldn’t rubber-stamp a rate increase.