The First “Great” Merger: The Failed Saga of WG&A and CFC

When WG&A was formed it was ostensibly to combat the entry of foreign shipping companies on local inter-island routes. That was the time of many so-called “deregulation” initiatives of Fidel V. Ramos. But even then I had doubts about this as an cabotage law was in effect in the Philippines. Cabotage effectively prevents foreign shipping companies from plying local routes. And to repeal it an act of Congress is needed and I heavily doubted then that the Philippine Congress will go along with that.

It is generally accepted that it was Aboitiz Shipping that proposed this big merger. Rumors had it that the biggest shipping company, Sulpicio Lines, which was also Cebu-based was also invited but it refused and preferred to go it all alone.

The merger brought together the second, third and fourth-biggest shipping companies in the Philippines reckoned by passenger and cargo operations out of a total of five long-distance liner companies (but may I note which is in fourth place might be disputed by Negros Navigation). It had the effect of lowering the number of long-distance passenger shipping companies from five to three.

The merged company and its subsidiaries were the biggest shipping combine that ever existed in the Philippines in terms of fleet and in terms of route network. It significantly brought to that Visayas-Mindanao and intra-Visayas routes and High Speed Craft(HSC) operations. For the former, the Cebu Ferries Corp. (CFC) was formed and for the latter SuperCat was retained.

Brought into the merger were the following ferries (including their former routes):

WILLIAM LINES INC.
Mabuhay 1 (Manila-Cebu and Manila-Iloilo)
Mabuhay 2 ((Mnl-Surigao-Butuan-Tagbilaran-Mnl and Mnl-Tagbilaran-CDO)
Mabuhay 3 (Manila-Davao-Dadiangas-Manila and Manila-CDO-Iloilo-Manila)
Mabuhay 5 [after a few voyages permanent fielding overtaken by merger]
Dona Virginia (Manila-Dumaguete-Ozamis-Iligan v.v.)
Maynilad (Manila-Zamboanga-Davao)
Masbate I (Manila-Masbate-Catbalogan-Tacloban)
Zamboanga City (Manila-Puerto Princesa v.v.)
Tacloban City (Manila-Batan-Dumaguit-Dipolog v.v.)
Iligan City (Cebu-Iligan v.v.)
Misamis Occidental (Cebu-Ozamis v.v.)
Mabuhay 6 [unfinished]

CARLOS A. GOTHONG LINES INC.
Our Lady of Akita (Manila-CDO-Butuan v.v. and Manila-Cebu v.v.)
Our Lady of Medjugorje (Manila-Dumaguete-Ozamis-Iligan-Cebu v.v.)
Our Lady of Sacred Heart (Manila-Roxas-Palompon-Isabel-Cebu v.v.)
Our Lady of Lourdes (Manila-Dumaguit-Palompon-Cebu v.v.)
Our Lady of the Rule (CDO-Cebu v.v. and CDO-Jagna v.v.)
Our Lady of Naju (Cebu-Ozamis v.v.)
Our Lady of Fatima (Nasipit-Cebu v.v. and Nasipit-Jagna v.v.)
Our Lady of Mt. Carmel (Iligan-Cebu v.v. and Iligan-Dumaguete v.v.)
Our Lady of Guadalupe [reserve/unreliable; formerly Cebu-Surigao v.v.]
Our Lady of Lipa (Cebu-CDO v.v.)
Dona Cristina (Cebu-Tacloban v.v. and Cebu-Palompon v.v.)
Dona Lili (Cebu-Surigao v.v. and Cebu-Maasin v.v.)
Don Calvino [reserve/unreliable; formerly Cebu-Iligan v.v.]
Our Lady of Akita 2 [unfinished]

ABOITIZ SHIPPING CORP.
SuperFerry 1 (Manila-Iloilo-GSC-Davao v.v. and Manila-Iloilo v.v.)
SuperFerry 2 (Manila-Cebu-CDO v.v.)
SuperFerry 3 (Mnl-Zamboanga-Cotabato v.v. w/ Boracay (summer) and Mnl-Dumaguit-Roxas v.v.)
SuperFerry 5 (Mnl-Cebu-Iligan-Dumaguete-Mnl) and Mnl-Dumaguete-CDO-Cebu-Mnl)
Elcano (was not used; obsolete/unreliable; supposedly not brought by ASC to the merger)
Allowing for database inaccuracies, the following cargo ships were brought to the merger:

CARLOS A. GOTHONG LINES INC.
Our Lady of Peace (112.9m x 18.0m, 17kts, b. 1974)
Our Lady of Hope (99.0m x17.3m, 17kts, b.1979)

ABOITIZ SHIPPING CORP.
Aboitiz Concarrier V (69.0m x 10.9m, b. 1968)
Aboitiz Concarrier XIV (71.0m x 10.9m, 13kts, b. 1965)
Aboitiz Superconcarrier I (115.1m x17.3m, 14kts, b. 1970)
Aboitiz Superconcarrier II (102.0m x 16.3m, 12.5kts, b. 1970)
Aboitiz Superconcarrier III (105.5m x16.3m, 12.5kts, b. 1976)
Aboitiz Megacarrier 1 (139.7m x 19.3m, 14kts, b. 1975)
Aboitiz SuperRORO 100 (108.2m x20.0m, 16kts, b. 1983)

WILLIAM LINES INC.
Wilcon II
Wilcon 4
Wilcon 5
Wilcon VI
Wilcon VII
Wilcon 8
Wilcon 11
ROCON I

Excluding HSCs which were just beginning to arrive in the Philippines, the combined fleet of WG&A was nearly 50 vessels, slightly more than double the fleet of Sulpicio Lines, previously the biggest shipping company in the country.

SHIP TRANSFORMATIONS AFTER THE MERGER
Mabuhay 1 became SuperFerry10
Mabuhay 2 became SuperFerry 7
Mabuhay 3 became SuperFerry 8
Mabuhay 5 became SuperFerry 9
Mabuhay 6 became Our Lady of Good Voyage
Our Lady Akita became SuperFerry 6
Our Lady of Akita 2 became SuperFerry 11 (and later the Our Lady of Banneux)
Masbate I became Our Lady of Manaoag (in 1998)
Misamis Occidental became Our Lady of Montserrat (in 1997)

VESSELS TRANSFERRED TO CEBU FERRIES CORP.
Our Lady of Lipa (later transferred to WG&A)
Our Lady of the Rule
Our Lady of Lourdes
Our Lady of Fatima
Our Lady of Mt. Carmel
Our Lady of Guadalupe
Dona Cristina
Dona Lili
Don Calvino
Misamis Occidental
Our Lady of Good Voyage (later)
Maynilad (later and also renamed Our Lady of Akita 2)
Our Lady of Banneux (later)
Our Lady of Manaoag (later)

Like all mergers and acquisitions (M&A), the terms “synergy”, “rationalization” and “streamlining” was bandied about as if these terms are positive terms in business. But soon these words brought chills to the rank and file because the sum of the 3 words is actually only one — “chopping block”. This is the field of bean counters where shipping passion is simply thrown out of the window.

Immediately, the Aboitiz Jebsens system was adopted. That means relying on bigger, faster ROROs and short in-port hours which equates to high utilization of ships. That called for good ship engines, a field of expertise of the now-renamed WG&A Jebsens. That system, however, also meant the death knell for the cruiser liners as their cargo booms meant long in-port hours and their having no car decks means low capacity for container vans.

The new style was to put all cargo in container vans and all container vans are mounted in trailers. For fast handling, tractor heads from trucks were no longer good enough. Only dedicated, automatic prime movers with the capability to raise the trailers were used. Calls on in-between ports generally were only 2-3 hours and ships don’t stay overnight at the farthest port of call of a voyage.

With so many ROROs sailing high hours per week (with some ships sailing 145.5 hours out of a 168-hour week), WG&A was confident it could sell less-efficient and slower ropax and container ships without affecting capacity and frequency. Soon some of the vessels were already for sale.

VESSELS SOLD SOON AFTER THE MERGER
Tacloban City (cruiser)
Iligan City (cruiser)
Dona Cristina (slow, small RORO)
Don Calvino (slow, small, unreliable RORO)
Dona Lili (slow, small RORO)
Wilcon 6 (old cargo ship)
Aboitiz Concarrier V (old cargo ship)
Aboitiz Megacarrier 1 (big, modern container ship)
Aboitiz SuperRORO 100 (big, modern container ship)
RoCon I (big, modern container ship, the biggest in the country)

VESSELS OFFERED FOR SALE BUT NOT SOLD THEN
Dona Virginia (cruiser liner)
Maynilad (big but slow RORO liner)
Zamboanga City (ROLO liner)
Our Lady of Naju (cruiser)
Masbate I (slow, small RORO)
Our Lady of Montserrat (cruiser)
SuperRORO 300 (former Our Lady of Hope, container ship)

With WG&A Jebsens managing the fleet, the merger upgraded the amenities, cleanliness and passenger service of the ferries. But initially all meals were for sale; vehement protests from patrons thereafter forced WG&A to backtrack. It was also claimed that safety standards improved as the whole fleet is now internationally-certificated. However this was not reflected in lower hull-loss rates. Ironically, it was the lesser Our Ladies (and not the SuperFerries) which proved to be unsinkable.

WG&A and CFC practiced branding. Branding is good in the sense that it promises consistent quality and service. On the other hand branding also utilizes ads and promotions. If that results in better market share then it should be good. Otherwise it only means higher level of costs. And higher costs are a threat to marginal routes and to less-efficient ships.

Initially, even with a fifth of their fleet sold (and with only one additional ship coming, the SF12 and while losing the SF7 to fire), WG&A was able to offer more frequencies because of the higher utilization of ships. But almost no new ports of call were added except for Bacolod. And probably the only significant new routes were the Manila-Cebu-Surigao-Davao (which passes through the eastern seaboard of Mindanao), Manila-Ormoc-Nasipit, Manila-Dumaguete-Cotabato and Manila-Cebu-Zamboanga-General Santos/Davao routes.

It was Cebu Ferries that added more new ports of call and routes (like Cebu to Dumaguit, Roxas City, Bacolod, Dumaguete, Larena, Jagna and Camiguin and Cagayan de Oro to Dumaguete) which in turn put a lot of pressure on the other Cebu shipping companies. CFC ships were faster than the competition and as former liners they simply outclassed the rest in terms of amenities and service.

Sulpicio Lines and Negros Navigation responded by adding ships. Sulpicio Lines basically kept to their old routes (except for the new Manila-Cebu-Davao-Dadiangas route) but Negros Navigation which previously concentrated only in Western Visayas has to venture in a lot of new routes and ports of call because their fleet more than doubled in a span of a few years. But then by sailing to Cebu, Nenaco also opened their former exclusive port of Bacolod to competition and they lost more than they gained.

This period right after the merger, the late 90s, was probably one of the best in Philippine passenger shipping. Competition was fierce, choices were many and there were a lot of newly-fielded ships. There were more shipping companies in the past but the ships of the 90s were far better than the ships of the earlier periods. In major ports there were nearly daily departures from all the liner companies combined.

But they say good times never really last. But I didn’t expect that the decline will be that soon, that fast, that continuous and what will be left is just the rump of the biggest-ever shipping company in the Philippines.

The first hint of trouble that I detected was when I noticed that WG&A was not properly assessing the threat, challenge and development of the intermodal system in Eastern Visayas which was then growing by leaps and bounds.

If Fidel V. Ramos had a deregulation program in shipping he also had a deregulation program in the bus and truck sectors. As deregulated area, bus companies can now ply Eastern Visayas routes with just a temporary operator’s permit. Soon a lot of buses were plying the Samar-Leyte-Biliran routes. Then the dominant short-distance RORO company in the Matnog-Allen route lost the case to protect their missionary status and new players entered that route ensuring that the ROROs needed will always be there. Long-distance trucking also developed with the loosening of the restrictions in the importation of surplus trucks. And with the advent of radial truck tires long-distance trucking became easy.

WG&A’s response was to withdraw from the Samar-Leyte routes except for the adjacent ports of Ormoc, Palompon and Isabel which actually comprises just one route. But soon under pressure from the buses these were lost too including the port of Masbate City which was also part of this route. Soon the islands of Masbate, Samar, Leyte and Biliran were lost to the intermodal trucks and buses.

Eastern Visayas was a signal victory for the intermodal system which was based on long-distance truck/bus plus the short-distance RORO ship. Wins by the challengers tend to have a multiplier effect. They become stronger, bolder and more confident. If the ship can be beaten in one area then nobody can pooh-pooh anymore that they will not be beaten in the next area of confrontation. And the next challenge probably happened before the WG&A has fully internalized their loss and it happened when they were in relative disarray.

A related development at this time was that WG&A’s new routes failed to stick and only the Bacolod route was able to survive. The new CFC routes also failed to pan out and were being abandoned one by one. One contributory factor for CFC’s retreat is fuel cost. The amenities and service of their ships might have been higher as those were former liners but as former liners it is also the reason why their engines are bigger and consume more fuel. Soon WG&A/CFC were selling ships. This was the second set of disposals and it happened at about the turn of the millennium. Also disposed in this period were at least six catamarans including vessels that came from mergers in the High Speed Craft (HSC) sector (the mergers with the Sea Angels of Negros Navigation and Waterjet).

At the same proximate time, it was already the strategy of WG&A to sell old and inefficient cargo ships and just let the ROROs liners carry the container vans. They then went for bigger ROROs later with twin cargo decks, the reason for the purchases of the SuperFerry 15, SuperFerry 16, SuperFerry 17 and SuperFerry 18.

The next challenge did not come from the intermodal. Rather it was the withdrawal of the Gothong family from the merger except for one scion. Soon the Gothong family re-entered the shipping business and re-established Carlos A. Gothong Lines Inc. (but they were not particular successful). Not long after this development the Chiongbian family (of William Lines) also withdrew from the merged company. But they did not re-enter the shipping business. Let it be noted, because it is important, that all the merged shipping companies independently retained their cargo forwarding businesess. For the Chiongbian family it was the Fast Cargo Transport Corp.(FCTC) and Gothong Cargo Forwarding Corp.(GCFC) for the Gothong family.

One can speculate that the sale of 10 vessels in 2000-02 (including those withdrawn from routes and old container ships) might somehow be connected to these withdrawals. When the company also took out a big loan in this period ($18.6 million) it might also have a relation to this state of affairs. Before the end of 2002, Aboitiz had already bought out its former partners. But it will still be later that the company will be renamed Aboitiz Transport System (ATS).

The next challenge came from the intermodal again. In 2003, the Western Nautical Highway opened and buses, trucks and jeeps were able to roll down to Panay island via Mindoro and Batangas. Soon the shipping routes and shipping companies serving Panay were under great pressure. Again, WG&A chose to withdraw (from Dumaguit and Roxas) and just tried to hold on to Iloilo port.

The opening of the Western Nautical Highway and the consequent withdrawal from routes, the withdrawal of the Chiongbian family and the need for new ROROs provoked a massacre of ships in this period as about 15 ships were disposed in the years 2003-06, both from WG&A and CFC, both ROPAX and container ships. It must also be noted that six catamarans were also sold in this period. WG&A was lucky that at this time world metal prices were peaking. If it hastened the disposal of ships I can say it is probable. Let me state that in the late 1990’s when all three families were still in WG&A, the company did not sell to the breakers, in general. In the first half of the first decade of the new millennium WG&A sold heavily to the breakers especially when world metal prices were peaking.

Attracted by the doubling of world metal price in 2007, WG&A then sold their prized ferries Superferry 15, SuperFerry 16, SuperFerry 17 and SuperFerry 18 to foreign liner companies.In the process they earned a windfall. But this is not without cost as they suddenly lacked the ships needed to carry the container vans. As a stopgap measure WG&A chartered 3 container ships, the “Myriad”, “Markella” and “Eponyma”. They then also converted SuperFerry 2, SuperFerry 9 and SuperFerry 12 into twin-cargo-deck ROPAX ships. Later the subsidiary cargo company 2GO was formed and the chartered ships were returned one by one.

At about the same time, in 2007, a very ominous development took place. Aboitiz partnered with MCC Transport of Singapore, the Asia subsidiary of the A.P. Moller – Maersk Group, the biggest container shipping company in the world and formed the MCC Transport Philippines (MCCTP). Since it met nationality rules, it was able to ply local routes and the ships invested by Maersk were given special permits by MARINA.

If the chartered ships of ATS and the ships of 2GO were a step up over local competition, the ships that came from MCC Transport were still another further step ahead in terms of size, speed and efficiency. MCCTP acted as feeder to MCC Transport which now dominates the Asia container routes. Together with the coming of more regional container ships (after APL) with direct foreign routes (like MELL, PIL, RCL and others), this completely undermined one important bread and butter of local container shipping which is the transshipment of foreign container vans. ATS and subsidiary 2GO cargo operations might have been affected by this but as a group Aboitiz is safe because they are also on the side of the winners through MCCTP.

After the sales of the four of the biggest and most modern SuperFerry ships in 2007, the fleet of ATS/CFC no longer grew. New ships have come like SuperFerry 20, SuperFerry 21, Cebu Ferry 1, Cebu Ferry 2 and Cebu Ferry 3. But ships have also been sold, lost or laid-up like SuperFerry 9, Our Lady of Medjugorje, Our Lady of Good Voyage, Our Lady of the Rule, Our Lady of Mount Carmel and SuperFerry 19.

With only six ships sailing, ATS ports of call were already down to half compared to its peak and in half of these ports the frequencies were down to once a week. CFC ports of call were also down to half and its fleet is less than a third of what it had before. CFC changed its website and no longer claimed it was the biggest Visayan shipping company (which is just a reflection of the truth). The Sulpicio Lines fleet was already bigger than the combined ATS and CFC fleets. If cargo ships are counted, Sulpicio’s fleet was almost double the combined ATS, CFC and 2GO fleets.

In 2008, KGLI-NM, the holding company owning Negros Navigation made an offer for Aboitiz Transport System. When the bank financing the take-over bid asked for more collateral the bid collapsed. This take-over bid was news for a long time because of the significance and it dragged. It was here that ATS propagated the canard that shipping is losing to the budget airlines and it obscured the fact that cargo is the lifeblood of shipping. Ironically it is this same year that regional container ships in Philippine ports multiplied. And not once did I notice Aboitiz discussing its shares in MCC Transport Philippines. But at least the Aboitiz group was frank enough to admit that the business of power generation attracts them more and that they are already heavily investing in it and if ATS is sold it will be one of their primary investment areas.

In 2010, with the assistance of the ASEAN-China Fund, Negros Navigation Company was finally able to secure the deal to buy Aboitiz Transport System and its subsidiaries especially Cebu Ferries Corporation, SuperCat and 2GO, the forwarding company. At its end as an Aboitiz company, ATS, CFC and 2GO had only 9 ROPAX ships and 2 cargo ships sailing which is not any bigger in gross tons than the company it merged in WG&A even if the SuperCats are counted. So in effect that means the bigger William Lines and Gothong sank without any replacement.

Aboitiz always says around that it has already gotten out of shipping and the maritime industry. But they completely obscure the fact that they are still in MCC Transport Philippines (MCCTP) and they completely own now the former Aboitiz Jebsens (renamed back when the Gothong and Chiongbian families withdrew from WG&A). The former Abojeb is in crewing and manning and that is one of the five recognized sectors of the Philippine maritime industry as defined by the government. MCCTP is already in expansion after Aboitiz sold Aboitiz Transport System. [Recently, Aboitiz clarified that some of their family members are engaged in MCCTP.]

Now, Negros Navigation Company owns Aboitiz Transport System and NENACO even retained the name and the brands. It will be a matter of time before it will be evident how big a bag they are holding.

The “great” merger of 1996 started out with a bang, lofty words and promises. It exited with just a whimper. But along the way it sank two great liner companies (William Lines and Gothong) and took down with it the liner industry.

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