NOL sells APL stacktrain business; Orris to head operations

By Staff -- Logistics Management, 4/1/1999

Those who have been around intermodal transportation for a while experienced a sense of déja vu last month, when Neptune Orient Lines Ltd. (NOL) announced it would sell its North American stacktrain service operated by subsidiary APL Ltd. to Apollo Management L.P., a New York-based investment firm. Though Apollo is not a familiar name in transportation circles, the company recently made a major investment in Pacer International Inc., a fast-growing intermodal marketing company headed by Donald C. Orris. The deal puts Orris, a former APL executive and one of the "founding fathers" of doublestack service, back in charge of operations some 15 years after the first doublestack train left the West Coast.

Land Transport Services (LTS), NOL's North American stacktrain business unit, provides doublestack rail service in the United States, Canada, and Mexico, primarily for APL and the domestic intermodal market. The company also serves a small number of motor carriers and other ocean shipping lines.

Under the terms of the deal, NOL will sell most of its shares in LTS--currently held by NOL's APL Ltd. subsidiary--to Apollo for $315 million. APL will retain a $7.5 million stake in the stacktrain company, which will operate as an "affiliate" of Apollo.

The unusual agreement allows APL to retain a significant measure of control over LTS's operations. APL and the new company will sign a 20-year agreement that will preserve APL's existing cost structure and service levels. APL and LTS also will jointly negotiate new contracts with railroads and share any cost reductions that result from renegotiating current contracts. Orris says LTS will not immediately seek to renegotiate all of its pricing arrangements with railroads, other vendors, and customers. "We will renegotiate contracts case by case. Many of our contracts are on a very long-term basis," he reports, "and there will be no change in those for some time."

Otherwise, customers should not see much difference between the "old" and the "new" LTS for a while. Orris says he plans to retain the stacktrain company's current management and will take over existing equipment lease obligations as well as ownership of some physical assets. Although Pacer International and LTS will share a chief executive, Pacer will remain a separate company.

The sale is subject to approval by NOL shareholders, successful financing by Apollo, and review by the U.S. Department of Justice. APL President and CEO Tim Rhein says he does not expect any difficulties with approvals or financing. An NOL shareholder meeting to vote on the sale had been scheduled for early April.