Neptune Orient Lines Limited Business Information, Profile, and History

Company Perspectives:

The NOL Group's well-diversified fleet of modern and young vessels comprises large and small containerships, crude and product tankers, and dry-bulk carriers. Backed by a team of dedicated shore and sea crew, this young fleet gives the NOL Group a competitive edge in terms of reliability, speed and efficiency.

History of Neptune Orient Lines Limited

Neptune Orient Lines Limited (NOL, or NOL Group) ranks among the world's top five shipping companies and is the largest shipping company in its Singapore home market. NOL is a worldwide provider of container shipping and logistics services, and operates one of the industry's largest fleet of tankers for petroleum and other liquid and dry bulk transport; the company also operates a charter vessel service. Shipping, both containers and tankers, represents by far the largest share of the company's revenues, accounting for 72 percent of the company's sales of nearly US$4.75 billion in 2001. Logistics, including the company's supply-chain management and overland container rail transportation services in the United States, added 15 percent to the company's sales. Charter services provide another 9 percent to the company sales. In addition to APL, the company's chief subsidiaries include American Eagle Tankers, the company's crude oil transport division, with a fleet of 25 Aframax tankers; and Neptune Associated Shipping (NAS), formed in March 2002, which consolidates the company's fleet of 22 clean petroleum product tankers. NOL is a public company listed on the Singapore stock exchange, with additional over-the-counter trading conducted through the New York and Frankfurt exchanges. The Singapore government, long NOL's controlling force, maintains a 33 percent share of the company. The company has been led since 1999 by Flemming Jacobs, formerly of rival Maersk.

19th-Century Shipping Power

While Neptune Orient Lines was incorporated only in 1968, its largest component, APL, carried its history back to the mid-19th century. In the year 1848, William Henry Aspinwall--who was later to become one of the founders of the Society for the Prevention of Cruelty to Animals--won a ten-year mail delivery contract between Panama and Oregon. Aspinwall set up the Pacific Mail Steamship Company that year; the following year, the company got an added boost when, with overland routes blocked by heavy snow, the 49ers rushing to the California Gold Rush were forced to take passage on Pacific Mail ships. In 1850, Pacific Mail sealed its monopoly of the Panama-Oregon route when it acquired two steamships from rival Empire City Line.

Aspinwall's other interests included part ownership of the Panama Railroad Company, which enjoyed exclusive railroad rights across the Panama Isthmus. By 1855, the Panama Railroad had begun operations linking the Atlantic and Pacific oceans. A journey that had previously taken four days to accomplish was now possible in just four hours, cutting the total transport time between San Francisco and New York to as little as three weeks. In 1865, Pacific Mail extended its own operations to cover that entire route when it acquired eastern counterpart Atlantic Mail Steamship Company.

Pacific Mail opened a sea route to the Far East in 1867, using a specially prepared vessel to begin regular service from San Francisco to Hong Kong and Yokohama, while adding feeder lines to other destinations in Japan and China. Government subsidies enabled Pacific Mail to increase the frequency of its service and to add newer and more modern ships, including an order of 11 new ships delivered in 1873. The cost of the company's fleet expansion, coupled with the onset of an economic depression, enabled financier Jay Gould to take a controlling interest in Pacific Mail, which was then acquired by Gould's Union Pacific Railroad in 1885. The following decade, Pacific Mail was taken over again, now by Southern Pacific Railroad. That company extended Pacific Mail's service to include direct routes to Honolulu, Kobe, Nagasaki, and Shanghai.

The opening of the Panama Canal in 1912 presented opportunity for U.S. shipping companies; yet because railroad operators were prohibited from providing shipping through the canal--to discourage the formation of a monopoly--Pacific Mail was locked out of use of the canal. Unable to compete in the newly possible east-west shipping route, Southern Pacific decided to sell off Pacific Mail's fleet. Most of the company's ships were acquired by Grace Line, owned by W.R. Grace, which then acquired the company outright in 1916. That company invested heavily in Pacific Mail and by 1920 the company boasted a fleet of 46 steamers.

Presidents' Line in the 1920s

By then, Pacific Mail was facing competition from another rising steamship company, Dollar, owned by Captain Robert Dollar. Launched in 1900, Dollar had become a leading shipper across the Pacific. In the 1920s, the Dollar family began shares in its competitors, and by 1924 had acquired Pacific Mail from Grace Line. By then, the Dollar company had begun its practice of naming its vessels after American presidents--in 1925, its President Harrison became the first to begin operating a route around the world. Dollar continued making acquisitions, and succeeded in gaining nearly full control of the Pacific shipping routes by the end of the decade.

The effects of the Depression, coupled with losses from the wreck of one of its vessels in 1937, brought the Dollar company to bankruptcy in 1938. The company was then taken over by the U.S. government, which, during the 1940s added more than 30 new ships to its fleet. The government owners maintained the tradition of naming its vessels after presidents, underscored by the renaming of the company as American President Lines (APL). During the war, APL's fleet was converted to supporting the war effort; returned to civilian duty following the war, the company once again became a leader in the passenger trade.

In the mid-1950s APL was held by the Natomas Company, owned by Texas oilman Ralph Davis. Under Natomas, APL began converting its operations to container shipping. Just being introduced in the late 1950s, container shipping promised to revolutionize international shipping, offering faster roll-on roll-out times, with small crews, and safer passage for the goods being transported. It also promised some salvation for shipping companies staring down a new threat--the inauguration of the first passenger jet service by Pan American Airlines in 1958. By the middle of the next decade, passenger traffic rates among shipping lines had been cut in half, and were to continue to dwindle as the passenger jet industry took off.

APL's conversion to container shipping took place over the course of a decade--by the beginning of the 1970s, container shipping accounted for nearly 60 percent of the company's operations. During the decade that followed, APL prepared to embrace another revolution in the shipping industry, which was then beginning a transition to becoming part of a larger logistics industry. By the end of the 1970s, APL had developed an "intermodal" operation capable of linking truck, rail, and sea shipments. This shift led the company to abandon its around-the-world cargo service and instead to concentrate on its Pacific sea service.

In 1979, the company became the first U.S. firm to provide rail links between its port operations and cities in the interior of the country. The company was behind the growth of containers themselves, which reached 45 feet in length at the beginning of the 1980s, and later extended to 53 feet. In 1984, APL added a new concept, that of the "stacktrain," which enabled containers to be stacked two-deep on special-purpose railcars. By then, parent Natomas had been acquired by Diamond Shamrock, which then spun off APL as a public company in 1983.

Container-based shipping had by then become the dominant mode of shipping goods. In the late 1980s, APL and other companies began seeking to extend the size of their container ships in order to maximize their profit potential. Yet ships faced a logistical barrier to growth--passage through the Panama Canal was restricted to ships of less than 33 meters in width, a size that had become an industry standard, even for ships that were never to use the canal. In 1988, however, APL began operating the new C10 class of containership, which, at 39 meters, was too wide to pass through the Panama Canal. Other carriers were to adopt the C10 design--a trend that was to force the Panamanian government to begin preparations to enlarge the canal at the turn of the millennium.

After opening offices in Shanghai, Tianjin, and Dalian in China in 1993, APL continued to expand its Far Eastern operations, opening a route to Ho Chi Minh City in Vietnam, as well as an office there. The company also entered the Global Alliance agreement with other carriers, which enabled it to begin offering services to Europe and South and Central America. By the mid-1990s, APL had grown to become the second largest container shipper in the United States, with a rail-based logistics network that stretched across the entire country. Yet APL's margins were equally stretched, as the shipping industry went through a wave of consolidations, new vessels began to appear, capable of carrying as many as 6,000 containers and more, resulting in overcapacity and intense pricing pressures. After changing its name in 1996 to APL Ltd.; the company was acquired by Neptune Orient Lines in a deal worth more than US$825 million.

Singapore-Based Shipping Giant in the 21st Century

Neptune Orient Lines (NOL) was a far smaller and much younger regional shipper controlled by the Singapore government. Set up in 1968, NOL bought its first ship, the Neptune Topaz, the following year. In 1971, NOL began operating a charter route, and soon after began building a fleet of clean petroleum product tankers. By 1974, NOL had begun to spread out beyond its home region, moving across the Pacific to open an office in the United States. Nonetheless, the bulk of NOL's operations were in the intra-Asian market, with a strong component operating within the Asian-European trade market.

NOL went public in 1981 on the Singapore stock exchange; the company's stock was later to be sold as over-the-counter shares on the New York and Frankfurt exchanges as well. The Singapore government remained a major shareholder, and by the end of the century still held about one-third of NOL's stock through its investment company Temasek Holdings. The stake enabled the Singapore government to maintain control of the growing shipping firm.

NOL began expanding in the 1990s, moving into crude oil transport. In 1994, the company regrouped its crude oil operations under a new subsidiary, American Eagle Tankers, which began offering both lightering (barged-based goods transportation) and voyage chartering services. American Eagle started out with just three ships and by the end of the decade had grown to a fleet of 25 ships. The subsidiary quickly extended its range, becoming particularly active in the U.S. Gulf and the Caribbean, as well as on transatlantic and North Sea and Mediterranean routes.

The worldwide shipping industry entered a period of consolidation in the mid-1990s. Part of the motivation behind the series of mergers, such as that between P&O of the United Kingdom and Nedlloyd, of the Netherlands, was the heavy investment that companies were facing as they began replacing aging fleets with the larger, newer generation of vessels. In order to fund such large-scale investments, the companies themselves began seeking a larger scale.

NOL's acquisition of APL in 1997 placed it among the top five in its industry worldwide. While some analysts criticized the company for paying too much in the deal, worth US$825 million, others praised the company for taking the opportunity for gaining scale far faster than would have been possible through organic growth. NOL not only more than doubled in size, it also expanded its operations worldwide--with APL's prized cross-U.S. railway-based logistics link helping the company complete an around-the-world service operation.

The APL acquisition had been the largest ever made by a Singapore company. It also led the company to posting the largest-ever losses in that country's history, as NOL, hard hit by the Asian economic crisis, saw its losses mount to more than US$250 million in 1998. Between 1997 and 1998 the company's total losses topped US$460 million, while the company's debt swelled past US$4 billion.

In 1999, NOL went in search of a new CEO, bringing in Flemming Jacobs, who had formerly worked for rival Maersk. Jacobs immediately set to work rescuing the sinking company, shedding a number of noncore operations acquired with the APL purchase, raising US$500 million in equity funding, and paying down more than half of the company's debt by 2000. Among the assets sold was Stacktrain, bought by Pacer International for US$315 million. The company also began trimming its workforce, which had grown to more than 10,000 employees after the acquisition, cutting out more than 1,000 jobs.

By 2000, NOL was once again posting profits. At that time, NOL began preparing to boost its logistics component, which it viewed as its major growth area. As Jacobs stated in a company press release, "This is the third of the three steps we identified to take the company into the future. The first two steps--strengthening the financial base of the company and strengthening the organization of the liner business and how we serve our customers--are now well established. Concurrently, we have prepared ourselves for the third step--focusing on our Logistics business."

For this, the company hired outside consultants to assist its APL Logistics subsidiary in planning its expansion. Then, in 2001, APL Logistics made its first major acquisition, that of GATX Logistics, one of the largest logistics providers in the U.S. market. The US$210 million acquisition gave NOL some 21 million square feet of warehouse space in a network operating across North and South America, while boosting APL Logistics revenues by more than 70 percent. The GATX acquisition also brought the company an online logistics subsidiary, Direct Logistics. That same year, the company added German freight forwarding and distribution operator Mare Logistik & Spedition GmbH.

APL remained NOL's single largest operation, and that division continued to grow. After joining Mitsui OSK Lines and Hyundai Merchant Marine Co. to form the New World Alliance, APL also inaugurated additional container shipments between Europe and North America, as well as new container services to Latin America. The company also began serving ports on the Red Sea directly from Asian ports. Supporting this growth was the expansion of the company's container stock, which topped 450,000 containers in service.

The softening of the world economy at the turn of the century, and particularly since the destruction of the World Trade Center in September 2001, hit the company hard, and by the end of 2001 the company posted a loss of US$57 million, while its revenues barely advanced to US$4.74 billion for the year. As a result, the company disposed of its Direct Logistics operations, which had suffered from the collapse of much of the Internet market.

Although NOL remained pessimistic about its prospects in 2002, it continued to make moves to streamline its operations and enhance its profitability. Among these was the creation, in March 2002, of a new subsidiary named Neptune Associated Shipping (NAS ) which grouped all of the company's petroleum product tanker operations, previously operated through various subsidiaries. By then, NOL's operations stretched to more than 100 countries, served by one of the world's largest fleets of containerships and Aframax tankers. Neptune Orient Lines was ready to sail into the new century.

Principal Subsidiaries: American Eagle Tankers Inc. Limited; APL Limited; Neptune Associated Shipping (NAS); APL Logistics Singapore Pte Ltd; Centenary Shipping (Pte) Ltd (60%); Globe King Company Limited (Hong Kong); Golden Sol Investment Pte Ltd; Intidaya Properindo 90 90 53 53 (Indonesia); Milky Way Shipping Inc (Panama); Neptank Pte Ltd; Neptune Iota Lines Ltd; Neptune Realty Management Pte Ltd; Neptune Shipmanagement Services (Pte) Ltd; NOL (Australia) Pty Ltd; NOL (China) Co Ltd; NOL (Germany) GmbH; NOL Infotech (Australia) Pty Ltd; NOL (Hong Kong) Co Ltd; NOL (Japan) Ltd; NOL Management Services (Hong Kong); NOL (Netherlands) Rederij B.V.; NOL Singapore Agency (Pte) Ltd; NOL (United Kingdom) Ltd; OCWS Logistics Pte Ltd; Specargo Forwarding (S) Pte Ltd; Trident Travels Ltd; Trident Towers Realty Pte Ltd; Trilith Shipping Pte Ltd; Trilithon Shipping Pte Ltd; Trident Districentre Pte Ltd (75%); Titan Company Pte Ltd (Cayman Islands); Tsui Ching Ltd (Hong Kong).

Principal Competitors: A.P. Moller; B+H Ocean Carriers Ltd.; Bolloré SA; Evergreen Marine Corporation (Taiwan) Ltd.; Frontline Ltd.; Golar LNG Ltd; Hanjin Shipping Co., Ltd.; Mitsui O.S.K. Lines, Ltd.; Nippon Yusen KK; OMI Corporation; P&O Nedlloyd Plc; Stena Line; Stolt-Nielsen SA.

Chronology

• Key Dates:
• 1848: William Henry Aspinwall helps found Pacific Mail Steamship Company to service mail delivery contract between Panama and Oregon.
• 1865: Pacific Mail acquires Atlantic Mail Steamship Company, giving the company a route stretching from New York to San Francisco; company begins freighter service across the Pacific.
• 1893: South Pacific Railroad acquires Pacific Mail.
• 1916: Grace Line acquires most of Pacific Mail's fleet, then begins expansion of company.
• 1924: Pacific Mail is sold to Dollar Line, which launches around-the-world service the following year.
• 1938: Dollar Line goes bankrupt and Pacific Mail is taken over by U.S. government, which renames company American President Lines (APL).
• 1952: Ralph Davies leads an investment group to acquire APL for US$18 million.
• 1959: APL begins transforming its fleet to containerships.
• 1968: Singapore-based Neptune Orient Lines (NOL) is founded; buys its first ship the following year.
• 1971: Neptune begins first charter service route and also begins providing clean petroleum product tanker shipping.
• 1981: NOL goes public on the Singapore stock exchange.
• 1994: NOL creates American Eagle Tankers to operate its crude oil tanker business.
• 1997: NOL acquires APL in the largest acquisition ever made by a Singapore company.
• 2001: NOL acquires GATX Logistics, which is integrated into its growing APL Logistics subsidiary.