Image by Wakanatsu
Early in his term, President Fidel V. Ramos enunciated his policy of shipping liberalization and of modernizing the maritime sector. There was no question then that the maritime industry stagnated in the crisis of the 1980’s. There was apparent lack of bottoms (lack of ships) especially since a significant number of shipping companies nosedived and sank in that decade. Among the most prominent of those were Compania Maritima/Maritime Company of the Philippines, Philippine President Lines/United President Lines and Galleon Shipping. With the very high rates of interest then, the shipping companies were reluctant to borrow from banks to purchase ships. Aside from shipping companies, many local shipbuilders then especially the biggest ones were also distressed.
President Ramos laid out incentives for the purchase of additional ships (but these were not necessarily newer compared to the ships that came in the 1970’s). Many shipping companies took advantage of this and added bottoms. In general, they were expecting for an upturn of the economy that was expected to result in the revival of the shipping industry as in more goods to be shipped means more shipping.
A discordant note, however, also surfaced at the same time of this. A rumor surfaced that foreign ships will be allowed to trade in the local waters. With the small size of the local shipping companies and its old ships, there was no question that they will just be sunk by the foreign shipping companies.
But, personally then, I wondered how could it be when we have an anti-cabotage law which bars foreign ships from plying our inter-island routes. Since it is a law, then for foreign ships to do local routes, it has to be repealed first. And that means it has to pass through both houses of Congress. I thought it had no chance of passing since ship owners have a lot of friends there and many legislators will simply be aghast at the thought of our local ships facing a tsunami-like competition.
It is in this note that a proposal to merge local shipping companies “to face the foreign threat” emerged and it was Aboitiz which was the drum beater to this bandwagon. A proposal was made to merge William Lines, Gothong Shipping and Aboitiz Shipping Lines. This was done in late 1995 and the new company WG&A was formally inaugurated in January 1, 1996. I heard that Sulpicio Lines, the biggest shipping company then (although William Lines disputes this) was invited to the the merger but instead opted out.
With this merger, WG&A suddenly had 33 liners and overnight ships. About 10 or so of those were immediately assigned to their Visayas-Mindanao subsidiary, the Cebu Ferries Corporation. They also had nearly the same number of container ships from big to small. All and all, they had a fleet of over 60 passenger and container ships. This fleet was the greatest ever assembled in the entire history of Philippine shipping.
The ferries were then made to run the Aboitiz Jebsens way which means the very minimum of in-port hours but with intensive maintenance. Even with new routes created and additional frequencies, WG&A had a surplus of ferries and so then they sold the older and slower ones especially the cruisers (which by its nature cannot be made to follow the regimen of short in-port hours). They also started to sell their surplus container ships including the biggest ones.
With a WG&A fleet of that size and with the Aboitiz Jebsens system of sailing, the two other liner companies which were Sulpicio Lines and Negros Navigation faced tremendous pressure in the liner and long-distance routes. It is interesting to discuss how each reacted to their “crisis” (just a note, even if the two merged and even if MBRS Shipping joined them, still WG&A will be bigger than them especially in cargo/container capacity).
Of course, the first move of any of them will be to add newer, bigger and faster ships with amenities and comfort that can match the liners of WG&A. Sulpicio Lines added the MV Princess of the Universe, the MV Princess of the World, the MV Princess of the Caribbean, the MV Princess of the Ocean and the MV Princess of New Unity. This happened between 1996 and 1999 but let it be noted that they lost the MV Princess of the Orient in 1998. Meanwhile, Negros Navigation added the MS St. Ezekiel Moreno, the MS San Lorenzo Ruiz and the MS Mary Queen of Peace in 1997-98 and this was soon after they fielded the sister ships MS St. Peter The Apostle and MS St. Joseph The Worker in late 1995 (let it be noted also that they lost the MS St. Francis of Assisi in 1999).
M/V Princess of the Universe of Sulpicio Lines © zamboships/Flickr
I heard Sulpicio Lines acquired their new liners through their old agent in Japan which means liberal payment terms (Sulpicio Lines was not the only local company which has this kind of connection and privilege). Negros Navigation, meanwhile, relied of the bank position of their leader Daniel Lacson Jr. to acquire the ships through loans from the government-owned Philippine National Bank. It seems this is the first divergence in their approaches on how to handle the WG&A tsunami.
With more ships, Negros Navigation created new routes and added new ports of call like Davao, General Santos City, Cotabato City (Parang, Maguindanao actually), Dapitan, Ozamis, Iligan, Tagbilaran, Dumaguete, Puerto Princesa and even San Carlos and Toledo. The first word I heard that they could be in trouble with such expansion was when I had a cargo manager as a cabin mate. He explained to me it is cargo that makes routes and not passengers and that a shipping company will not know in six months time if a route would hold. He added it might take one or two years to know and in the process the shipping company has already burned a lot of cash.
Meanwhile, Sulpicio Lines just stuck to the routes they had and used their new ships to modernize and not be outgunned by WG&A. The only significant new route they added was the Manila-Cebu-General Santos City route when the MV Princess of the New Unity came. They did not try matching WG&A route by route and frequency by frequency.
In a few years, it was WG&A which was culling routes, leaving some ports of call and cutting frequencies. This process accelerated with the divestment of the Chiongbian (owners of William Lines) and Gothong families in the Great Merger. And this process happened barely six years into the merger.
In the same span of time, Negros Navigation had already began quitting routes and ports of call, too. Signs of financial distress also began to show. Soon suppliers and contractors went to court to garnish ships for unpaid supplies and for jobs done on ships. Lucky for them, a “white knight” in the person of Manny V. Pangilinan came to their rescue.
Ten years after the start of the liberalization program of President Ramos, the number of liners and container ships in the country had already shrunk. The number of our ocean-going ships with regular frequencies and ports of calls abroad had also been pared to nearly zero. Some of our biggest shipyards were also already in foreign hands.
What went wrong?