APL-NOL prepare to meet future challenges

By Staff -- Logistics Management, 6/1/1998

When Singapore-based Neptune Orient Lines (NOL) bought U.S.-flag APL Ltd. last year, it came as a surprise to most industry observers. After the initial shock came speculation that the multinational marriage might not work out, and some expressed fears that APL would lose its identity as a top-of-the-line service provider.

Six months later, those worries largely have been laid to rest. Although the road often has been bumpy, APL has worked hard to reassure customers that its commitment to high levels of service and advanced technologies hasn't changed.

The chief ambassadors in APL-NOL's mission to spread that message are NOL Group President and CEO Lua Cheng Eng and APL Ltd. President and CEO Tim Rhein. Lua and Rhein jointly delivered the opening keynote speech at last month's International Intermodal Expo in Dallas. In that presentation, Lua spoke about the economic impetus behind the continuing wave of ocean-carrier mergers and the need for carriers to provide logistics services and excellent customer service if they were to survive in the future. Rhein stressed the competitive impact of information-technology breakthroughs that support logistics-management capabilities. Increased operating and management flexibility and expertise in supply-chain management will be key to any carrier's success, he concluded.

After their speech, Lua and Rhein expanded on their visions for APL's future and talked about the carrier's current business activities in an exclusive interview with Logistics Editor in Chief Peter Bradley and Senior Editor Toby Gooley.

Q: How has the NOL-APL merger affected your company's operations, customer relations, and internal administration?

Lua: In this merger integration process we have had to deal with a fleet of more than 100 ships, duplication of offices, and more than 9,000 employees. This merger was only approved last November; we have done quite a lot, but of course there are problems even in the best action plan. Personally, I am quite satisfied with what we have done.

Rhein: The congestion on the West Coast and the problems from the Union Pacific/Southern Pacific merger ... have complicated our integration of systems and processes. [NOL] has adopted APL's technology, and we are training people in APL's systems. There have been some problems with documentation, routing, and stowage. Add to that the very strong inbound volumes from Asia plus the congestion [on the West Coast], and the result is unpredictability, which is counter to our whole premise. We are improving, but it has not been without some customer and internal dissatisfaction. Time will cure that.

Q: How is the ongoing economic instability in Asia affecting APL's operations?

Lua: There is a very, very serious imbalance [of trade], and inbound shipments are very, very strong. The imbalance is affecting our service because we can't give containers to Asian shippers where and when they want.

So many currencies there have been devalued--the Thai baht, for example, is down 30 or 40 percent--making their prices very competitive. We look at it as a short-term problem, and developments there suggest that the worst is over.

Q: Why has APL entered the North Atlantic and South American trades?

Rhein: We felt we had too much concentration in the Pacific. We wanted more East/West and Latin American business--we entered the Asia-Europe trade three years ago and Latin America and Mexico 10 years ago, but our resources were constrained and we had a difficult time expanding because of the returns required of being publicly traded. NOL is fairly large in Europe, Australia, and Canada, which is complementary to what we were doing.

This accelerates the globalization of our product. It's true that doing all this simultaneously is costly and a bit rough on us, but the world is changing too fast to do it one piece at a time.

Q: What is your pricing philosophy for Latin American routes?

Rhein: We are conference members, but like any other conference today, it's a free-for-all. We have flexibility, and we still think that conferences are the best way to go in Latin America today. We're not there to be king of the mountain, we're there to provide competitive service to our global accounts. This is a long-term proposition.

Q: Do you expect that the liner market will be substantially different in terms of economics and service standards 10 years from now?

Lua: The industry is still quite open to further consolidation. The price of shipping stocks worldwide is a dismal picture, to say the least. There must be something for investors, something so that they'll want to get involved. ... The investors' simplistic solution is to charge more [for services]. I don't think that will happen.

Rhein: The economics in the liner industry are poor. The liner market will consolidate further, and carriers will be bigger, stronger, and fewer. I think deregulation will lead to that.

Ten years out, I think 50 percent of our business will be moving containers and 50 percent will be moving the information that moves the goods. The process has to be reliable, seamless, and timely for moving both information and the physical product.

Q: How is APL preparing to respond to those challenges?

Rhein: As much as we enjoy managing containerships, that's too commodity-like. What we're better at is information, and our logistics-information systems are arguably the best in the business. ... Logistics for us will be the key differentiator.

To excel in logistics, we need to have strategic partnerships. We're absolutely committed to that. Some things we'll do ourselves ... we still like to have ownership of certain assets. But in conversations with customers, they say we have to become broader and broader.

We also are investing heavily in the innovative use of software--there's an entire department in [APL's headquarters] devoted to that. We firmly believe that's the direction the logistics business is going in. To be able to grow, we'll have to be able to fill in any link in the supply chain.