The Ship Design Conflict Within WG & A

On the first day of the year 1996, the “Great Merger” officially happened. This brought the fleets and all assets of William Lines Inc. (WLI), Carlos A. Gothong Lines Inc. (CAGLI) and Aboitiz Shipping Corporation (ASC) under one single company and management except for some very old ferries of Aboitiz Shipping Corporation (the likes of Legazpi) and a some ferries and container ships of Aboitiz Jebsens (that was a separate company) which were the container ships acquired from the Ukraine. This was supposedly a preemptive move so local shipping can compete against the purported entry of foreign competition in the inter-island routes which proved to be a bogey or a false story later. How some old shipping families believed that foreigners can enter with a Anti-Cabotage Law in effect that forbids foreign shipping firms from sailing in local routes is beyond me because repeal of any law passes through Congress and our Congress is usually not keen on passing laws that grants free passage to foreigners and if those three liner and container shipping companies are willing, the regional shipping companies and other companies might not be willing and they can also raise a ruckus. But anyway the unlikely merger happened and a very big shipping company was formed from previously competitors.

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Dona Virginia (Credits to Palawan Wildlife Rescue and Conservation Center and Manu Sarmiento)

Any merger usually results in excess assets and in shipping that includes ships aside from management personnel and employees and logistical assets like containers, container yards and buildings. This was easily obvious with the WG&A merger. Since there were excess liners some of it were sent to its regional subsidiary Cebu Ferries Corporation (CFC) like when the Mabuhay 6 (the Our Lady of Good Voyage) and the Our Lady of Lipa were sent there. Meanwhile, all the cruisers liners were offered for sale. They also tried to dispose old and unreliable ROROs like the Dona Cristina, Don Calvino and the Dona Lili that were formerly regional ferries. Actually even some recent liners were also offered for sale. The total was about 10 and that was already about a third of the combined fleet. That also included a handful of container ships.

I knew it early there was a conflict with the disposal of ships when I had as a cabin mate in SuperFerry 7 the cargo manager of William Lines in North Harbor and he was furious because to him it seems that the liners of William Lines were being targeted. Well, that might have been the unintended result of getting Aboitiz Jebsens as fleet and maintenance manager because they will use their old standard in choosing ships (that company was subsequently renamed to WG&A Jebsens to reflect the changed circumstances).

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Don Calvino (Credits to George Tappan and Gorio Belen)

One has to look into recent history to understand this. Aboitiz Shipping Corporation as a liner company did not acquire any liners from 1974 to 1988 and the one they acquired in 1988 was inconsequential as it was just the small and old cruiser liner Katipunan of Escano Lines which became the Legaspi 1. By that time Aboitiz Shipping Corporation had just a few old liners sailing, a combination of former “FS” ships which were on its last legs and a few old cruisers including the pair acquired from Everett Steamship, the Legazpi and the Elcano which were also clearly obsolete already and getting unreliable. It looked to me that without their partner Jebsens Maritime that was influential in their container shipping (which was actually good), they might not have had their blockbuster SuperFerry series.

If one looks at the SuperFerry series of Aboitiz Shipping Corporation, one will easily see its distinguishing characteristics. They are all ROROs (or more exactly ROPAXes) with car ramps at the bow and at the stern, the container vans are all mounted in trailers, trailer caddies hauled them in a fast manner and if possible the two car ramps are both employed so one is dedicated for loading and the other for unloading. Radios are also employed for communication to orchestrate the movement of the container vans so a trailer caddy hauling a container aboard will have a container being unloaded on the way down and markers are used so loading of container vans will not be helter-skelter which can mean difficulty in unloading a container van in an intermediate port.

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Maynilad by Britz Salih

To remedy their serious lack of liners due to non-purchase in the recent years past, Aboitiz Shipping Corporation and Aboitiz Jebsens designed their liners to have short interport hours as in 2 to 3 hours only, the former the preferred time. In Manila and in the endport, the port hours were also very short. With this kind of operation the SuperFerries had a high number of hours at sea on a weekly basis which meant maximum utilization. While a Sulpicio Lines liner will only have a round-trip voyage if the route is Southern Mindanao, an Aboitiz ship will still have a short trip to the likes of Panay within the same week or else do a twice a week Northern Mindanao voyage. With this style, their 4 SuperFerry ships were in practicality the equal of 5 or 6 ships of the competition. Of course with this kind of use of ships a heavy load of preventive maintenance is needed and that happened to be the forte of Aboitiz Jebsens.

When the Chiongbian and Gothong families agreed to the Aboitiz proposal to have Aboitiz Jebsens as fleet and maintenance manager they should have already known was in store and that is the liners should perform the Aboitiz Jebsens way and that meant those which can’t will fall into disfavor and might be the target for culling because with the Aboitiz Jebsens system a lesser number of liners will be needed to maintain their route system and frequencies. Of course at the start WG & A will try to employ all the liners that were not relegated to their subsidiary Cebu Ferries Corporation. But then new liners were still coming onstream, the liners William Lines, Gothong Lines and Aboitiz Shipping ordered when they were still separate companies. WG & A created new routes and frequencies but in a short time they realized what cannot be maintained because there are not enough passengers or cargo like the routes to Tacloban and Dipolog (Dapitan actually) and the Manila-Dumaguete-Cotabato and Manila-Cebu-Surigao-Davao routes.

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Tacloban City (Credits to Times Journal and Gorio Belen)

With that “weak” and “inefficient” ships will be targets for culling aside from the old liners and there was no question that cruiser liners will be first in the firing line. That type cannot carry much cargo and their cargo handling in the interport is longer as cargo booms are not as fast in loading and unloading unlike trailer caddies. So it was no surprise that the cruiser liners Misamis OccidentalTacloban City and Iligan City, formerly of William Lines were almost immediately up for sale. The small ROPAX Zamboanga City was also offered for sale because her engines were big relative to her size and capacity (16,800-horsepower engines) and she had no ramps at the bow. That also went true for the slow Maynilad (14-15 knots only on 16,800 horsepower). The problem with these is they were all former William Lines ship, the reason why some former William Lines people were upset. But they accepted Aboitiz Jebsens as the fleet manager and so that will almost inevitably be the result.

Some lesser liners survived. The “Our Lady” ships of Gothong Lines survived because for their size and capacity their engines were small and that speaks of efficiency and though while a little slower they were fit for the short routes like the northern Panay routes (Dumaguit and Roxas City) or in the periphery like Masbate and Eastern Visayas. The northern Panay route also became the refuge of the Our Lady of Naju, a former Gothong ship which was also a cruiser. The passengers and cargo of the route were not big and so a big cruiser liner like the Dona Virginia will not fit. But of course all that favored the former Gothong ships. It might just have been a quirk of fate and not necessarily because the Gothong representative to the WG & A Board of Directors who is Bob Gothong is close to the Aboitizes. But then I wonder how the Our Lady of Lipa survived. For her size she has big engines and speed was not really needed in the Dumaguit/Roxas City route. Was it because they wanted to show up their competitor the old but beautiful cruiser liner Don Julio of Negros Navigation? I thought when the old cruiser liner Misamis Occidental was refurbished to become the cruiser ship Our Lady of Montserrat, a former William Lines vessel she might have fitted the route (she was even re-engined and became all-airconditioned like the Our Lady of Naju). Was her speed not really enough for the route? Or WG & A wants a ship that is really superior to the competition?

Our Lady of Banneux

Credits to Keppel Cebu and Ken Ledesma

It was not surprising then that in the early merger years that former William Lines officers and employees would think it was only their vessels which was on the firing line or chopping block.

The beautiful SuperFerry 11 which was fielded after the merger was also not that favored. Her engines are just about okay for her size, she has the speed but then like the Zamboanga City she has no car ramps at the bow because she also came from A” Lines of Japan. She was also destined for William Lines if the merger did not happen. The beautiful Maynilad would have easily been a SuperFerry in terms of size and accommodations if not for her grave lack of speed. Being excess later the SuperFerry 11 and Maynilad were passed to Cebu Ferries Corporation and they were the biggest ships that company ever had. That was after WG & A created an entirely new route for them, the Manila-Ormoc-Nasipit route which in first report was good. But then along the years WG & A and successor company Aboitiz Transport System (ATS) developed a reputation for being very soft in holding and maintaining routes. In Cebu Ferries the SuperFerry 11 was renamed to Our Lady of Banneux and the Maynilad was renamed to Our Lady of Akita 2 after her top passenger deck was removed. The two happened to be ex-William Lines ships also! Although not clearly disfavored (as she made the SuperFerry grade), the Our Lady of Banneux which can run at up to 19 knots had a grounding incident in Canigao Channel from which she never recovered again.

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The ship Zamboanga by Wilben Santos

So actually the William liners were the great casualties of the merger due to redundancy and incompatibility and that was because they were unlike the original SuperFerry liners and they simply cannot make the SuperFerry grade (well, just like the former “Our Lady” ships of Gothong Lines only one of those made the SuperFerry grade, the former Our Lady of Akita which became the SuperFerry 6). Of course their former Mabuhay 1 and Mabuhay 3 which made the SuperFerry grade lived longer. The former Mabuhay 2 was not lucky as she was hit by fire early which led to complete total loss. In the longer run only the Mabuhay 1 and Mabuhay 3 survived and the Mabuhay 3 as SuperFerry 8 was even leased to Papua New Guinea because of the surplus of liners in WG & A.

The liners of Carlos A. Gothong Lines Inc. (CAGLI) were more lucky as they found niche routes and small engines played into their favor. Moreover many of the former Gothong Lines ships were in regional routes and they lived long there including their former small liners the Our Lady of Fatima and the Our Lady of Lourdes which were sister ships. That even included the venerable Our Lady of the Rule and their old Our Lady of Guadalupe which has unreliable engines and I even wonder how she lasted so long. In the regional routes some former ships of William Lines survived like the Our Lady of Good Voyage and the Our Lady of Manaoag.

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Dona Lili (Credits to PNA, Phil. Daily Express and Gorio Belen)

When the Chiongbian family of William Lines divested in 2003 only 2 of their former liners remained in WG & A aside from a few container ships. They were paid off in cash from the passenger and container ships that were scrapped. There were still many Gothong ships in the fleet of WG & A when they divested as most survived the culling but they preferred newly-acquired ships when they restarted independent operations.

And that was the story of the ship design conflict in WG & A which have been one of the reasons why the “Great Merger” unraveled so soon.

Time Will Come The LCTs Will Take Away The Business Of The Container Ships

It was a friend of mine who worked as trusted man of someone high up in shipping who told me that MARINA has set it just to 30 or 35% load for a container ship to be profitable. I was aghast by that because that will mean terrible inefficiency and high rates for the shippers. That was twenty years ago and in that same time span our local shipping industry has been under attack for very high rates and it has been pointed out that from Davao it is much cheaper to send a container van to Hongkong or Singapore which are much farther than Manila. But even after two decades there has been no change in the situation of the industry. If there was, it is the rates went up geometrically higher. And of course that was unacceptable but our bureaucrazy only acts to change things if there is already an imminent revolt.

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Intermodal trucks for loading in BALWHARTECO Port in Allen, Samar

As they say water seeks its own path and one cannot hold or bottle it forever. One big response by shippers that I saw was in the widespread deployment of intermodal trucks that use our highways and then boards short-distance ROROs at the end of the road and then continue on to the next island. The intermodal truck might then still board another short-distance RORO to another island. I found out there are even trucks whose origin is Mactan island which are bound to Manila and will traverse Cebu island, Negros island, Panay island and Mindoro island before landing in Batangas port. And of course intermodal trucks from Manila or CALABARZON find its way to Davao regularly and there are some that reach as far as Zamboanga.

Consolidation” of the local cargo shipping industry especially the container sector has long been proposed by experts both local and foreign. But it has fallen into deaf ears and the national government will not wield the proverbial stick to make this come true and so it lays until now where it started, that is as proposals. “Consolidation” would have led to greater efficiency and thus lower rates. But locally, businesses and not only shipping wants to see efficiency not to lower rates (of course, they will pay lip service to that) but to higher profits. And so greed rules and trumps everything and the higher national interest and greater good do not matter in the end.

Our different shipping companies are republics of their own and historically they have never been into cooperation, consolidation or merger (except the “Great Merger” which produced WG&A and which had been a disaster to local shipping) even though some are related by blood. If there has been a CISO (Conference of Inter-island Ship Owners) in the past, it is only because they want to present a common front vis-a-vis the government and also to make sure that the agreed rates are being observed by all (however, in other countries that will ruled as “cartelization” and subject to penalties or even jail terms; but not here as that term is practically unknown and even Economics teachers here do not know that). Oh, well, actually the cartel master locally is MARINA which sets the rates. Historically, they set the maximum rates but like what happened to LTFRB they treat the maximum rate as also the minimum and MARINA in the end serves just the needs of the shipping companies and not the general public. But before it be misconstrued that they are servile to shipping companies, the truth is shipping companies fear MARINA as their livelihood and fortune is dependent on the decisions of MARINA. If the rates are drastically brought down then they might all go down.

That is the reason why the shipping companies will fight toe and nail for the retention of the Anti-Cabotage Law which bars foreign shipping companies from sailing local or inter-island routes. If the Congress (which has the power to repeal the Anti-Cabotage Law) allows the entry of the much more efficient and capable foreign ships then local cargo rates will drastically go down but our local shipping companies will drown. Regarding the Philippine Competition Commission (PCC), that entity will not amount to anything in shipping because that only checks mergers and mergers are a near-impossibility in shipping.

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LCT Raenell of Asian Shipping Corporation in Mandaue

And so shippers and other related interests will find new ways to bring down rates some other way. One of these is the employment of the cheap and cheap-to-operate LCTs which has only 1,000 horsepower on the average which is just about a third of the power of the container ships. True, they will probably only run at about 7 to 8 knots compared to the 11 to 12 knots of the container ships. So they will take three days to Cebu where a container van will only take two days. But, hey, the bulk of cargo is not express anyway and a difference of one day will not really matter, in the main. Nowadays if one really wants it fast one takes to the plane and use air cargo which is P20/kilo at the lowest now.

It is through the use of chartered LCTs from Asian Shipping Corporation that Ocean Transport had their start. Using big LCTs (by local standards), 94 TEUs can be fitted with the container vans stacked like Lego and handled by big forklifts. The LCTs cost P70,000 a day, fuel and crew included and so the transport cost one way is just over P200,000 not including cargo handling in Manila and possible cargo handling in Cebu. Plus of course other labor, office, yard and anciliary costs and maybe insurance. Under the table money, I have only the vaguest of ideas. But in this calculation one can see the movement of a TEU to Cebu via chartered LCTs is just P4,000, starting. That will not be the actual rate but one can see how low it is via LCT when the normal commercial rate for a TEU to Cebu is probably 5 times of that. The LCT might have just a capacity of 94 TEUs and the container van has 300 TEU but if they are only a third full on the average then the actual load of the two is just about equal and the LCT has probably only has a third of the horsepower of the container ship. The LCT usually has about 100% load. So it is very easy to see which is more efficient and why an LCT can give much, much cheaper rates.

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Roble Shipping was the next to follow the shipping model of Ocean Transport and like the first they were also very quiet about it. Maybe the two fear that if it becomes known widespread that the LCT mode is successful some shipping companies will lobby MARINA and MARINA will institute a crackdown and maybe cite “safety” again which is the usual bogey of MARINA. It has been a long time that the LCTs, being flat-bottomed and not that resilient against capsizing has been tagged with safety issues. It does not help either that being open-decked and having a low freeboard some issues were also attached by some to those. [Note: Ocean Transport and Roble Shipping now operates their own LCTs regularly carrying container vans from Manila to Cebu.]

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LCT Akira of Ocean Transport by John Carlos Cabanillas

The longest route I have seen LCTs bring container vans regularly is from Manila to Cagayan de Oro. And so locally it is proven now that LCTs can be container carriers for 500 nautical miles. I do not know if they are capable of Southern Mindanao routes which is up to 800 nautical miles but I think they can do it if needed. Of course, LCTs are normally earlier to seek shelter than container ships when there are storms. But if MARINA and the Coast Guard suspends voyages at 45kph wind speed then the container ships might not have an advantage anymore.

The LCTs are looked down upon by many but they should know that China which is already the biggest shipbuilding country in the world and is already a shipping power widely uses LCTs to move their cargo internally and on shorter distances. Actually most of our new LCTs now are from China and many came here brand-new. In terms of age, our LCTs might be younger than our container ships now. And LCTs are the backbone of our Cargo RORO LCT fleet which not only move trucks but also trucks and trailers bearing container vans especially to islands that are not served well by container ships like Bohol, Leyte and Samar.

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LCT PMI-3 from Leyte

If MARINA won’t crack down, I see intermodal trucks and LCTs further taking away the business of the container ships which is still growing in number but I know their cargo volume is not increasing. Consolidation would have been easy for them if they will just open their eyes and be open-minded and it does not mean that they would have to merge, an anathema to many executives as that might mean losing their positions and careers that they have built over the years. Actually the simplest consolidation is the swapping of container vans. There is no container company that has daily departures even from Manila and the simplest is they should load their containers to their partner shipping companies which has the nearest departure. That will mean ships being fuller and at the end of the month they can reconcile their figures and charges would have to be paid for the difference but of course it should be on friendship or partner rates.

With that, less ships might have to be employed, there would be less sailings and that would have to mean savings that should be passed on to consumers if they have any integrity. With consolidation too there might be enough containers vans to ports and islands that they have already abandoned or bypassed and so the container ships can come back there and sailing level might be maintained (now isn’t that neat?). Internationally, this system I mentioned is already being used and not only in shipping. I don’t see any valid reason why the local shipping companies can’t do it. It will only be impossible if their distrust of each other is too much and their owners and executives are too obtuse. The national government should also wield the stick after incentives are laid out. They can even set the rules and the system. It is high time already as for the past two decades after constant criticisms I have not seen our local container companies try to bring down container rates to acceptable world standards. They are just being kept afloat by the blood of the shippers. And that is why forwarder companies are making great strides and container shipping is just where they were two decades before. That is also the true reason they won’t venture out to foreign waters because they simply cannot compete. Regarding their charge that our ports are too shallow that is baloney because much bigger foreign ships use the same major ports that they do.

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LCT Poseidon 15 in Verde Island Passage

I wish the LCTs well for maybe it is them that will be able to bring down container rates even though they might not look modern or beautiful. If they drown the container ships then it is the fault of the container shipping companies themselves.