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The Fall of Neptune Orient Lines: Singapore's National Shipping Company - YouTube
Channel: Asianometry
[0]
in december 2015 singapore's investment
[3]
fund temasek
[4]
agreed to sell its shares in neptune
[6]
orient lines or nol
[8]
to french shipping line cma cgm the
[10]
board unanimously approved the
[12]
transaction
[14]
for nearly 50 years nol was singapore's
[16]
national shipping line
[17]
rising up from nothing to a top 15
[19]
shipping line
[20]
nol reflected singapore's rise in the
[22]
global economy
[24]
but as the industry changed the
[26]
company's performance started to fall
[27]
behind its competitors
[29]
burdened with a high cost base and
[31]
unable to invest in its future
[33]
nol lost the ability to compete and that
[36]
would lead to its decline in eventual
[38]
sale
[39]
in this video we're going to take a deep
[40]
look back at what had been
[42]
a singaporean national champion but
[45]
first
[46]
i would like to ask you to take a look
[48]
at the agenometry newsletter
[50]
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[52]
the agenometry videos
[53]
i know that there is a lot of videos so
[55]
that is why i write the newsletters
[57]
check them out for the full scripts as
[59]
well as additional commentary after the
[61]
fact
[62]
i might also have some additional
[63]
newsletters off cycle
[65]
in the future with my thoughts and ideas
[66]
on things in the wider tech world
[69]
you can find a link to the newsletter in
[70]
the video description below or you can
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just go to asianometry.com
[74]
you can expect a new newsletter every
[76]
thursday at 1 am taiwan time
[78]
much thanks in the 1960s the singaporean
[83]
economy was dominated by the
[84]
manufacturing and service industries
[87]
because exports and trade were so
[88]
important to the economy
[90]
the government made the shipping
[91]
industry a critical priority
[93]
they pursued two methods towards
[95]
achieving that the first was to open the
[97]
singapore flag register to foreign ship
[99]
owners
[100]
the second was the founding of neptune
[102]
orient lines in 1968
[104]
as the country's national shipping line
[107]
nol was founded just three years after
[109]
the country's 1965 founding
[111]
same as taiwan's evergreen and was
[113]
wholly owned by the singaporean
[114]
government
[116]
guided by then finance minister dr gol
[118]
kang sui
[119]
who pushed hard for its creation neptune
[122]
aimed to build up a modern fleet that
[123]
can compete with the world's best
[125]
merchant shipping companies
[127]
a year later in 1969 nol bought its
[130]
first two ships
[131]
the first from the german company hansa
[133]
the 18 year old neptune topaz
[136]
the second a tanker named neptune taurus
[138]
from the worldwide shipping group
[140]
they shortly thereafter started building
[142]
their own ships as well
[144]
these early years were difficult the
[146]
company struggled to compete for
[148]
high-value cargo customers
[150]
in the competitive shipping market nol
[153]
was very small and young
[154]
its five-ship fleet was considerably
[156]
smaller than that of its competitors
[158]
their staff lacked experience and
[160]
knowledge of how the market worked
[163]
the company also clashed with the far
[165]
east freight conference
[167]
the fefc as it was called was an asian
[170]
european cartel that controlled all the
[172]
shipping routes between europe
[173]
and asia and set their freight rates nol
[177]
fought to gain entry and have a seat at
[179]
the table in global trade
[181]
in 1969 the singaporean government
[184]
converted the loans it made to the
[185]
company into equity
[186]
and then transferred those shares to
[188]
temasek holdings
[190]
a sovereign wealth fund neptune orients
[193]
fortunes turned in the 1970s when the
[195]
company decided to move into the
[197]
container business
[198]
the success of that move allowed the
[200]
company to modernize its fleet
[202]
and compete for better business under
[204]
the leadership of future prime minister
[206]
goh chok tong
[208]
nol turned its first profit in 1975.
[211]
the company joined several shipping
[213]
conferences to australia
[214]
and began gaining market share there in
[217]
1981
[218]
nol became the first singaporean
[220]
government founded company
[222]
to go public on the singapore stock
[223]
exchange they raised 155 million
[227]
money that would be reinvested into the
[228]
business
[230]
after the ipo temesec progressively sold
[232]
down their holdings in nol
[234]
but still held a big stake going into
[236]
the 1990s
[237]
somewhere in the high 20s it allowed
[240]
them to hold significant influence
[242]
i should stop here to expand on the
[244]
shipping industry and its business
[245]
dynamics
[247]
liner shipping companies are in the
[248]
service of transporting goods across the
[250]
world in massive high-capacity ships
[253]
most of these things are in containers
[256]
early on in the industry's history the
[258]
liner shipping at companies were just
[260]
that
[260]
they put things in their ships and
[262]
transported them to their ports of
[263]
destination
[264]
and their work ended there and this was
[267]
fine because the aforementioned shipping
[269]
conferences were cartels that regulated
[271]
freight rates and looked after everyone
[273]
if you were part of the club then the
[275]
freight rates kept you afloat
[278]
this change in the 1980s whenever green
[280]
marine opened a fully containerized
[282]
regular service from asia to europe
[284]
it broke the back of the century-old far
[286]
east free conference
[288]
and shocked the shipping industry
[290]
combined with increased anti-trust
[292]
scrutiny
[292]
the shipping conferences lost their
[294]
influence and the industry
[296]
began to deregulate with deregulation
[299]
comes competition
[301]
container carriers could no longer count
[303]
on regulated routes to always make money
[306]
like with the airliner industry
[307]
companies began finding themselves in an
[310]
increasingly competitive space
[312]
shipping only companies thus began
[314]
expanding both horizontally
[316]
and vertically in a bid to find
[318]
advantages
[320]
horizontally shipping lines began buying
[322]
bigger ships and each other
[324]
larger ships are more fuel efficient and
[326]
have economies of scale
[328]
samsung was one of the first companies
[330]
to show that a ship with carrying
[332]
capacity of 12 000
[333]
20 foot equivalent units or teu on the
[336]
europe to asia route
[337]
is 11 percent more cost efficient per
[340]
container slot
[341]
compared to a 8 000 teu ship this is 23
[345]
percent
[346]
better compared to a 4 000 teu ship
[350]
second shipping lines began looking
[352]
vertically to take
[353]
control of more of the shipment's
[354]
journey they sought to become more than
[356]
just shipping companies
[358]
but general logistics companies it
[360]
allowed them
[361]
to take more of the margin for shipping
[363]
over ground to help compensate for lower
[365]
margins on shipping things
[367]
overseas nol facing these competitive
[371]
pressures
[371]
sought an acquisition to help gain these
[374]
economies of scale
[375]
and survive in this new changing
[377]
industry
[378]
in the late 1990s they found a big one
[381]
in 1997 neptune made a bid to acquire
[384]
the 150 year old american president
[386]
lines
[387]
or apl limited this oakland-based
[390]
company owned 10 percent of the asian
[392]
north american container business and
[394]
would complement nol's already strong
[396]
asian european roots
[398]
the merger would be worth 825 million
[401]
usd
[402]
the biggest acquisition ever by a
[403]
singaporean company
[405]
the combined company would have 113
[408]
ships
[408]
80 of them container style the new
[411]
company would generate 4 billion dollars
[413]
in revenues
[414]
critically from a strategic point of
[416]
view purchasing apl would grant nol
[419]
access to prize u.s based logistic
[421]
railway links
[422]
and terminals it would help nol develop
[425]
their vertically integrated logistics
[427]
network
[428]
worldwide lua cheng-eng neptune's chief
[431]
executive at the time
[433]
said about the merger it will put both
[435]
companies in a very much stronger
[437]
position
[438]
by combining their complementary
[439]
strengths it will be very cost effective
[442]
in terms of service
[443]
and enhanced levels of service to our
[445]
customers
[447]
the merger was unfortunately timed as a
[449]
year later
[450]
the asian financial crisis threw the
[452]
entire shipping industry into a
[453]
crippling down cycle
[455]
shipping rates collapsed on routes
[457]
across the pacific and to europe
[459]
nol lost an immense amount of money
[461]
through those years from 1997 to
[464]
1998 the company lost 460 million usd
[468]
and debt swelled to over 4 billion
[470]
dollars the company had to write down a
[472]
value of part of its acquisition
[473]
and suffer from a longshoreman's lockout
[476]
at u.s west coast ports
[478]
louis vacated the ceo spot in 1999 but
[481]
remained chairman
[482]
fleming jacobs a former executive at
[484]
maersk stepped in as the new ceo
[487]
the move shocked the shipping industry
[489]
as jacobs had risen to a very high level
[491]
at maersk
[492]
one of the world's biggest shipping
[493]
companies as an
[495]
outsider jacobs had the leeway to remake
[498]
nol and he took full advantage to bring
[500]
the company in line with his vision
[502]
nol issued 500 million dollars of equity
[505]
shares
[506]
diluting the current stockholders to pay
[508]
down debt
[509]
and he sold assets including apl rail
[511]
subsidiary stack train
[513]
to pacer international for 315 million
[516]
dollars
[517]
and he let go over a thousand employees
[519]
a tenth of the entire company
[521]
many of the people cut came out of the
[523]
us-based apl
[524]
but at the same time he began bringing
[526]
westerners into nol's upper ranks
[529]
to such an extent that the joke at the
[531]
time went that nol stood for
[533]
no orientals left in 2000 the company
[536]
turned a profit of 178 million usd
[539]
has trans-pacific container rates
[541]
rebounded and the company's improved
[543]
cost structure shown through
[545]
the turnaround seemed complete as noah
[548]
entered the 2000s the company sought to
[550]
expand into the growing third party
[552]
logistics base
[553]
jacobs wanted to position nol as a big
[556]
player in this area
[557]
this is the third of three steps we
[559]
identified to take the company into the
[561]
future
[562]
we have prepared ourselves for the third
[564]
step focusing on our logistics business
[567]
the company divested its tanker
[569]
businesses and in 2001 established apl
[571]
logistics
[572]
as a separate operating company for its
[574]
third party logistics efforts
[576]
and in 2001 they paid 210 million
[579]
dollars
[579]
for gatx logistics one of the biggest
[582]
logistics providers in the united states
[586]
the acquisition boosted apl logistics
[588]
revenues by 70
[589]
and gave it access to 21 million square
[591]
feet of warehouse space across the
[593]
americas
[594]
but at the same time it was a pretty
[596]
penny to pay for a business that was
[597]
hardly profitable
[599]
this purchase along with the subsequent
[602]
acquisition of german freight forwarder
[604]
mario logistic expedition which kind of
[607]
sounds like a pair of twitch streamers
[609]
seemed likely to have been in overpay
[612]
then september 11th happened and again
[614]
the whole industry plunged into a
[615]
massive downturn
[616]
revenues at the liner business fell
[618]
despite shipping volumes going up
[621]
in the first half of 2002 the company
[623]
lost 151 million dollars
[626]
after closing 2001 with a loss of 57
[629]
million dollars
[631]
in 2003 jacobs lost his job as neptune
[634]
ceo
[635]
the losses were simply too much chairman
[638]
chung wai kung
[638]
said that the board had felt that it was
[641]
time for a change
[642]
in leaving before his contract was up
[644]
jacobs received a two and a half million
[646]
usd severance payment
[649]
jacobs had left but the changes he made
[651]
helped lay the foundation for a
[652]
healthier company
[654]
and things turned around again in late
[656]
2003-2004
[657]
when economic growth and export demand
[659]
in the united states
[660]
surged this drove up trans-pacific
[663]
shipping rates and in 2004
[665]
nol turned a record 429 million usd
[668]
profit the company took advantage of
[670]
this ray of sunshine to issue another
[672]
300 million in equity
[674]
temesec felt so good about the company's
[676]
prospects that they bought control of
[678]
nol
[678]
raising their stake from the high 20s to
[680]
53.5 percent
[683]
by this point nol had gone through two
[685]
major financial crises
[687]
within a five-year span both of them
[689]
have led to big annual losses and
[691]
company leadership resigning
[693]
but then just as quickly economic
[695]
conditions would turn around
[697]
and the company would post a profit
[698]
again it seemed like the company had
[701]
finally worked through its volatility
[702]
and was moving towards a brighter future
[704]
but the company's up and down profits
[706]
implied that it was tied closely
[708]
too closely perhaps to the global
[710]
business cycle
[712]
and that meant exposing itself to
[713]
massive risk if things went bad for a
[715]
very long time
[718]
neptune on the surface was a top 15
[720]
shipping company but below the line
[722]
there were serious problems
[724]
the company positioned itself as a
[726]
premier legacy operator
[727]
charging premium prices this is in
[730]
contrast with companies like singapore
[731]
airlines
[732]
which offer premium services at a
[734]
relatively low cost
[736]
nol constantly suffered from capital
[738]
shortage
[739]
like foundries ships require a lot of
[741]
cash up front
[743]
when times are good in the 2004-2007
[745]
time period
[746]
nol did not sell equity to raise cash
[748]
and try to make do
[749]
with what they had selling shares would
[752]
have diluted current shareholders
[753]
including the majority owner temesek
[756]
but without that cash they could not
[758]
invest in larger more profitable ships
[761]
and they had to take measures that save
[763]
capital in the short run
[764]
but also presented long term risks
[768]
during the economic boom in the run-up
[770]
to the 2008 financial crisis
[772]
noel chartered other people's ships
[774]
rather than building up their own
[776]
to scale up faster and take advantage of
[778]
favorable conditions
[779]
and as long as the market was good that
[781]
was fine
[782]
but when the financial crisis struck in
[784]
2008 everything turned around
[786]
demand in the container supply business
[788]
crashed six points from 2007 which was a
[791]
boom year
[792]
to 2008 and then another 15 points from
[795]
2008 to 2009
[797]
container freight rates dropped by 33
[799]
percent
[801]
every shipping company lost money maersk
[803]
lost 2.1 billion in 2009
[806]
south korea's hanjin lost 1.1 billion
[810]
noel lost 700 million dollars and had to
[812]
dilute shareholders
[813]
in a one billion dollar share raise the
[816]
shares of all the liners
[817]
crashed over 60 percent from the 2007
[820]
peak
[821]
despite the lower freight rates nol
[823]
still had the same cost structure as
[825]
during the boom years
[827]
because the rates for these charter
[828]
ships had been locked in for years
[831]
the losses and a botched acquisition bid
[833]
for german line hapag lloyd
[835]
would cost then ceo thomas held his job
[838]
continuing a string of short-term ceos
[841]
2010 saw a brief resurgence and a small
[843]
profit but neptune then saw losses for
[846]
the next four years afterwards
[848]
the losses meant that they could not
[850]
find the money to buy new and bigger
[852]
ships when the prices for them were
[854]
cheap
[854]
leading liner mayors ordered 20 18 020
[858]
foot equivalent unit ships
[859]
in 2011. prices for those ships
[862]
continued to fall into 2015
[864]
when evergreen bought 11 such ships each
[867]
for 35 million dollars less
[869]
than what maersk paid in 2011.
[872]
over the next four years neptune cut
[874]
costs by returning chartered ships to
[876]
their owners
[877]
taking their high costs off the books
[879]
but also missing out on potential
[881]
business
[882]
in other words giving up what little
[884]
market share they had in order to get
[886]
back to profitability
[888]
over 60 percent of shipping costs are
[891]
fixed and cannot be changed on short
[893]
notice
[893]
so the shipping business is all about
[895]
economies of scale bigger boats
[897]
without those bigger boats neptune does
[899]
not have the cost structure to compete
[902]
its shrunken stock already removed from
[904]
the benchmark straight times index
[907]
thus in 2015 the company positioned
[910]
itself for a sale
[911]
they sold their apl logistics unit to
[913]
japan's kinetsu
[915]
world express for 1.2 billion usd in
[918]
february
[919]
they cut their order book to nothing at
[921]
one time the only top 10 shipping line
[923]
without a pipeline of new future ships
[925]
all of this
[926]
to slim down the business and make it
[928]
more amenable for an acquirer to
[930]
integrate into their operations
[933]
the writing was on the wall and in
[934]
december 2015
[936]
some six years after the sale of charter
[938]
semiconductor to global foundries
[940]
nol was sold to french operator cma cgm
[943]
for 2.4 billion usd the price reflected
[947]
a mix of priorities
[948]
2.4 billion was a slight discount to the
[951]
total book value
[952]
of nol's assets which based on this data
[955]
seems to be around three billion dollars
[958]
but the discount is in consideration of
[960]
the company's long history of operating
[962]
losses
[962]
while taking into account the value of
[964]
nol's prize roots in asia
[966]
and to the united states so all in all a
[969]
good price
[971]
furthermore cma agreed to move a third
[973]
of its traffic out of malaysia to
[975]
singapore
[976]
and agreed to relocate its regional
[978]
headquarters from hong kong to singapore
[981]
doing this would help cushion the
[982]
economic blow to the country
[985]
now i have seen a lot of people pointing
[986]
to nol afterwards turning a 26 million
[989]
dollar profit
[990]
in the first quarter of 2017 is first
[993]
since 2011.
[995]
on the surface it seems like a damning
[996]
indictment of incompetent management
[999]
but the reality is a bit more
[1000]
complicated the core liner division had
[1003]
been showing improvement all the way
[1005]
back to 2015
[1007]
with a mere 11 million dollar loss in q2
[1011]
consolidating nol into its french parent
[1013]
would alone remove more than enough
[1015]
fixed costs
[1015]
to bring it to profitability cma also
[1018]
sold off its apl container terminals and
[1020]
other assets
[1021]
to raise a billion dollars furthermore
[1024]
the shipping company underwent a brutal
[1026]
2016. south korea's biggest shipping
[1028]
line hanjing shipping
[1030]
file for bankruptcy and creditors got
[1032]
just two cents on the dollar
[1034]
it took a lot of capacity out of the
[1035]
market and along with a booming economy
[1038]
allowed for a massive 2017 rebound
[1041]
but focusing on whether or not nol could
[1044]
have made a 26 million
[1045]
profit by itself though i think misses
[1047]
the main point
[1049]
probably the only way out for nol after
[1052]
the fall the shipping conferences and
[1053]
the deregulation
[1055]
was billions more of investment dollars
[1057]
for ships and scale
[1058]
taiwan's evergreen group which started
[1061]
at the same time as nol
[1062]
ordered 11 boats in 2015 each of those
[1066]
11 costs about 130 million dollars usd
[1070]
but evergreen group also had a
[1072]
profitable domestic shipping market
[1074]
an expanding electronics export business
[1077]
and diversified business lines
[1079]
like eva air to fall back on i don't
[1082]
think nol could have raised money on
[1083]
that scale to match
[1085]
without government help for noel to get
[1088]
those billions it needed to turn to the
[1090]
government purse
[1091]
and by 2015 people in government were
[1093]
realizing that nol did not mean as much
[1095]
to the country
[1096]
anymore back in the 60s and 70s
[1099]
singapore wanted to have a shipping line
[1101]
of its own
[1102]
in order to make sure that its
[1103]
manufacturing goods exports can be
[1105]
carried to its trading partners
[1107]
they made it a strategic priority but
[1110]
things are different now
[1111]
the shipping business is much harder to
[1113]
run china and malaysia are looking for
[1115]
their own seat at the table
[1116]
the shipping cartels that looked after
[1118]
everyone are now gone
[1120]
but at the same time securing shipping
[1122]
capacity is today
[1123]
a whole lot easier over the decades
[1126]
singapore's economy has shifted to more
[1128]
of a services
[1129]
life sciences and high-tech
[1130]
manufacturing economy
[1132]
temesec still owns companies that shine
[1134]
in those industries
[1135]
dbs group singtel and singapore airlines
[1139]
the jewel in the crown the way i see it
[1142]
temesek would have made the decision
[1144]
even if nol went green for a while
[1146]
they knew that nol could not compete and
[1148]
so they made the best move
[1150]
they could give it to someone who can do
[1152]
something with it and move on
[1153]
with their real priorities alright
[1156]
everyone that's it for tonight thanks
[1158]
for watching
[1159]
if you want more content you can like
[1160]
and subscribe to the channel i would
[1162]
like it if you did
[1163]
or check out the patreon if you want to
[1164]
support the work and watch any of their
[1166]
early access videos
[1168]
want to send me an email drop me a line
[1170]
at john agenometry.com
[1172]
i love getting letters from viewers
[1174]
until next time
[1175]
i'll see you guys later
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