Philtranco Always Tried Horizontal Integration

Horizontal integration is the setting up or the acquisition of a company at the same level of the value chain and that is meant to help the company compete. It can be a competitive strategy where economies of scale, more efficiency and increase of market power are the objectives. Companies engage in horizontal integration to benefit from possible synergies. But sometimes the resolution of a problem or a bottleneck prods a company into horizontal integration.

Philtranco Service Enterprises, Inc. (PSEI), the leading bus company in the Philippines then tried this strategy over a generation ago. From running a big fleet of buses from Manila to the southern part of the Philippines up to Davao City, they established their own RORO companies in the San Bernardino Strait crossing that linked Sorsogon and Samar. However, the results were certainly very mixed, to say the least, and controversial.

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The Cardinal Ferry 1. Research by Gorio Belen of PSSS in the National Library.

Since 1979, Philtranco buses (they were still known as Pantranco South then) have been rolling across already to Eastern Visayas via the San Bernardino Strait using the newly-fielded RORO Cardinal Ferry 1 of Cardinal Shipping. Newport Shipping which had ferries and cargo ships from Manila to Samar then followed with their Northern Star and Laoang Bay.

This reaction of Newport Shipping was very understandable as Newport Shipping was not really doing well with their Manila to Samar route and maybe they felt they have to defend their home turf as the owner of Newport Shipping is from Laoang, Northern Samar. They might have also felt that this new intermodal route might kill them in the long term and so they have to join the fun.

"Maharllika 1" Ferry unloading Bus

MV Northern Samar. Formerly the MV Northern Star before she was refitted. Photo by Lindsay Bridge of PSSS.

Before the ROROs arrived it was the motor boats of Bicolandia Shipping Lines (this company has legal-fiction companies like E. Tabinas) which dominated the route across San Bernardino Strait. But with the buses now rolling the passengers no longer have to cut their bus trip to Matnog and they do not take a local bus to Allen, Northern Samar to take the lancha (motor boat). Convenience is what the intermodal system offered. Cargo of the passengers that was once a hassle became less with the bus for it afforded less handling and haggling.

Immediately, there was a surplus of bottoms in San Bernardino Strait as the government-owned Maharlika II (later replaced by Maharlika I whom it replaced earlier) was also plying the official Matnog to San Isidro, N. Samar route. Moreover, the passengers to Eastern Visayas did not immediately shift to the buses especially the passengers to Leyte. They were still content with the liners of Sulpicio Lines and William Lines which had calls in Calbayog, Catbalogan, Tacloban and other ports in Leyte and Southern Leyte. In terms of comfort the bus is actually inferior to the liners which has its own toilets and baths, are equipped with bunks with mattresses and even linen (called “beddings”) plus the meals are free and the rice servings are generous. However, they only call in ports unlike buses which roll through the various towns.

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The Maharlika I. Photo from Edison Sy of PSSS.

In the aftermath of that surplus of bottoms, Cardinal Shipping and Newport Shipping teetered especially when Eugenia Tabinas got into the RORO act starting when she was able to acquire the Northern Star in 1981 which she then renamed into the Northern Samar. Eugenia Tabinas was in a strong position as she dominated the intra-Bicol routes with her motor boats and so she can compete in one of her routes at just break-even.

However, with many buses crossing San Bernardino Strait, Philtranco thought they could save money if they operated their own ROROs where they will always have priority. And so they also got caught in the RORO act (they were still strong then and they have just re-fleeted into Hino) and they thereby acquired the Laoang Bay of Newport Shipping which was renamed into the Black Double. In 1984, this became the Philtranco Ferry 1 of Philtranco Services.

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The Philtranco Ferry I. Research of Gorio Belen of PSSS in the National Library.

It is here that things began to get interesting and lively. Eugenia Tabinas or Bicolandia Shipping smelled that Philtranco was operating without a Certificate of Public Conveyance (CPC) and complained to MARINA, the Maritime Industry Authority which is the country’s maritime regulatory agency and which has quasi-judicial powers. Philtranco countered that since they were only loading their own buses then there is no need for them to get a CPC. Now, if MARINA agrees with that then Philtranco will be the only sea carrier without a CPC and that has great implications.

Along the way, Black Double got unreliable as she was built in 1962 and diesel engines were not yet as reliable (with changes in design and technology that changed in the mid-1960s especially when Daihatsu marine engines became dominant). She was sold to Badjao Navigation and she became the Badjao and she plied a route from Cebu island to Leyte.

While the case was pending (as it reached the higher courts as MARINA quasi-judicial decisions can be appealed in the Court of Appeals and the Supreme Court), Philtranco acquired the salvaged Mindoro Express from Prince Valiant Navigation which then became the Christ The Saviour and Christ The King. The RORO became the Luzvimin Primo because she was now under the Luzvimin Ferry Services, the new ferry company of Philtranco.

Mindoro Express ( now Maharlika Cinco )

The Mindoro Express just before she became the Christ The King and Luzvimin Primo . Photo by Edison Sy of PSSS.

In due time (which means a long time), the Supreme Court sustained the ruling of MARINA that a shipping company cannot carry passengers without a CPC and the ferry service of Philtranco stopped. By that time Philtranco was already toppling and it was fast losing its Hino buses.

Philtranco then fell into the hands of transportation mogul Pepito Alvarez who then equipped Philtranco with his new MAN and Nissan buses. Soon, he was able to reach a deal with the administration of President Fidel V. Ramos to operate the already-weak Maharlika ferries which in that time consisted only of Maharlika I and Maharlika II (this one was not in San Bernardino Strait but in Surigao Strait).

After settling in, Pepito Alvarez added the Maharlika Tres, Maharlika Cuatro and Lakbayan Uno (this was later sold to Millennium Shipping). And then the Luzvimin Primo became the Maharlika Cinco. Later, the Maharlika Seiz and Maharlika Siete were also also added to be followed by the Grand Star RORO 1 and Grand Star RORO 3 which came from Phil-Nippon Kyoei. This time Philtranco was already careful about the CPC. In these moves, Pepito Alvarez worked through his protégé Cristopher Pastrana.

Liloan ships

Maharlika Cinco and Maharlika Seiz. Photo from the PPA.

The horizontal integration of Philtranco was not necessarily beneficial for the passengers unless maybe in its early years when the dominant Bicolandia Shipping Lines engaged in what is locally-known as “alas-puno” system of departures when a ferry will only leave if it was already full of rolling cargo (and that was the cause of their downfall later). With that system, the buses and its passengers lose time and it could be in the hours.

But when ROROs bloomed in San Bernardino Strait, horizontal integration became a negative because Philtranco buses have to wait for the ferries (Maharlika ferries were not so reliable and it tried many routes in the country including in Catanduanes, Masbate, Marinduque, Batangas and Panay and so its presence in San Bernardino Strait and Surigao Strait was actually diluted and trips were few) as Philtranco buses have no freedom to sail in competing ferries.

I was once a passenger aboard a Philtranco bus from Davao. Our driver was driving fast so we can board the morning RORO of Maharlika in their Dapdap port (owned by sister company Philharbor). We arrived at 8:30am only to see the ferry has just left. There was only one Maharlika RORO then there and we waited for its return. Finally, we left Dapdap port at 1:30pm and everybody was so pissed up including the drivers as we saw several ferries leaving the competing BALWHARTECO port ahead of us. If our Philtranco bus had freedom, we would have been aboard the first of those that left BALWHARTECO port and saved several hours of waiting time.

Dapdap port

Grand Star RORO I and Maharlika Tres in Dapdap port. Photo by Mike Baylon of PSSS.

The Philtranco driver/conductors also didn’t like that they have no freedom to load the buses in competing ROROs. The reason is they can’t avail of the “rebates” offered by the competing shipping companies. This comes in the form of free ferry tickets that can be sold by the driver/conductors to their passengers. Even if only half the tickets are free that can come up to an average of P1,500 for the driver/conductors in additional income.

When Archipelago Philippine Ferries, the name of the shipping company established by Pepito Alvarez) weakened and they just had a limited number of ROROs running, Philtranco finally allowed its buses to ride the competing ferries as passengers began to shun them. However, when the FastCat ROROs came for Archipelago Philippine Ferries, the Philtranco buses were no longer allowed that again. There was also the experiment where the Philtranco buses were no longer boarded aboard the FastCat ROROs and only the passengers and their cargo were loaded. In that system, a Philtranco bus will be waiting at the opposite port.

Philtranco 1833 and 1710

Philtranco buses that disembarked from a FastCat. Photo by Mike Baylon of PSSS.

Now, Philtranco’s fleet is whittled and it is already far from its number in the 1980s after they re-fleeted from Leyland to Hino. And the tables turned already. It is so-many FastCats that needs them now and not the other way around.

Now, did you know that founder A.L. Ammen tried horizontal integration too?

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The MV Isla Simara Is Now In San Bernardino Strait

The MV  Isla Simara of Shogun Shipping was presented to the local media a few days ago in Pier 6 of NorthPort (the old North Harbor) before she departed where the controversial and untrue claim as the first RORO built by Pinoys was issued. The owners also claimed that the ship has the longest ramp in the country which is also untrue. Now, I did not know if Trump-ism has already taken hold in our land. Why claim things that are simply not true?

The Isla Simara’s keel was laid in a Sual, Pangasinan last year and when she was already capable of floating she was towed to Josefa Slipways in Navotas, Metro Manila where she was completed. In launching, there there was enough buoyancy from the shallow waters of the Navotas river plus she is large and so her screws hit and she had to be winched back to port for repairs. Now, I do not know if that was good omen or not.

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While already capable of sailing the Isla Simara cannot sail as she lacked a Certificate of Public Conveyance (CPC) which will allow her to sail a route legally . There was a back and forth where she will be fielded, one option being Cebu-Tagbilaran route but finally the owners were firm she would said the Matnog, Sorsogon to Allen, Northern Samar route using the private BALWHARTECO Port. It was the owners of this port which finally swung the owners in the route determination after pledging support to Shogun Shipping. However, the ferry lost more than two months.

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The other day, on August 26, 2019, Isla Simara finally arrived in Matnog after an economical-speed sailing in heavy rains spawned by the combination of a habagat (Southwest monsoon)intensified by a tropical depression. The next day, she sailed to BALWHARTECO Port and luckily the stormy weather already ceased and she docked uneventfully in the afternoon.

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And so last night, the ferry held an open house while docked at the port, in clear weather and invited were town, barangay (barrio) and port officials plus of course the local detachments of MARINA, the PPA and the Coast Guard. It was actually an semi-formal event and not so exclusive party and it was actually very rare as in a blue moon for a shipping company to invite the public in.

Well, one advantage is BALWHARTECO is not an ISPS port because if she is then it  will be off-limits to the general public because of fear of terrorists will then be the primary consideration. May I note that in my experience BALWHARTECO port is friendly to the general public and one can reach the ferries without much fuss. Inside the port are establishments that cater to the general public.

In BALWHARTECO, Isla Simara dwarfed the competing ROROs of Montenegro Shipping Lines which will be her main competitor (although the ROROs  in Dapdap and Jubasan ports of Allen will also be directly competing). This ferry is big and her size is not what is used in the short-distance routes (she might be the biggest ferry/RORO now in a short-distance route). However, she is a day ferry equipped with seats and lounges as insisted by the owner.

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Isla Simara has been built using many kits from China and even her interiors are not local. Her aesthetic design is impressive as well as her safety features. Of course, the bridge and engine room equipment are also imported. The ship can be considered first-class all the way at least by Philippine standards and her livery is not what is the usual in the local ferries.

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Her Captain said she will be doing six or seven round trips a day. But the question is will there be enough load? In San Bernardino Strait, most of the rolling cargo (the vehicles) is already contracted which means they have contracts with a particular shipping company that assures them of a reserved ride even in the peaks of the peak season (and the sometimes traveler in the peak season do not understand that leading to complaints of “favoritism” and dapat daw “first come, first served”). Well, Virginia, there are reservations everywhere and not only in ports.

Most of the passengers across San Bernardino Strait are intermodal bus passengers and they are tied to their buses, they are not free to choose their ride and almost all are enjoying the “free ferry” perk that means they have free tickets for the ferry which is actually true. Contracts and free tickets are things not yet understood by Shogun Shipping and they might be in for a rough surprise. But for private cars owners, Isla Simara might be a pleasant alternative as for sure there will be no queues and the accommodations and amenities are well above those of the short-distance ferries.

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What bothers me is the fact that Starlite Ferries of Batangas and the big Chelsea Logistics fielded a new ship in the exact route and ports and only lasted over a month when in terms of size, amenities, service and speed she can match the Isla Simara and yet she did not survive in the route. And to think that in MIMAROPA, in her home territory, Starlite Ferries is used to contracting and to rebates like what is present in San Bernardino Strait. Did they find it too hard to wean away the buses and trucks from their contracts? Besides, in San Bernardino Strait there are Cargo RORO LCTs that cater to trucks and they provide lower rates.

Last night, my informant and I were discussing over the phone. We thought Isla Simara could have been a killer if she was fielded as overnight ferry because then her superior amenities and newness will be more on display compared to a one-hour route like that in San Bernardino Strait. But who knows? Shogun Shipping still has three sister ships of Isla Simara on the pipeline. This company is really loaded as aside from ROROs they also have catamarans under the Island Water brand.

Whatever, her arrival to shake up San Bernardino bears watching. Her voyages commence next week.

 

[Photo Credits: Philippine Ship Spotters Society (PSSS), Mervin Go Bon Soon, Dwight and Shogun Shipping]

The Ferry That Won’t Die

A few months ago, out of a sudden, a PSSS (Philippine Ship Spotters Society) member espied a ship docked in Hilongos port. Even though it was dark he was able to recognize the silhouette since he has already sailed with it in crossing Surigao Strait. It was a surprise to the PSSS community since many thought she was already dead since it has been three years since she disappeared from the Liloan-Lipata route. The last that was heard of her was that she was in a General Santos City shipyard. That time the new FastCats of Archipelago Philippines Ferries were also due to arrive (and it did) and so they have no more need for their old and unreliable Maharlika ferries. In fact, they were also disposing off already their Grandstar RORO ferries which was even a later acquisition of theirs from Phil-Nippon Kyoei.

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Photo credit: Joel Bado

The ferry was the Maharlika Cinco which has long held the Liloan-Lipata ferry route for Archipelago Philippine Ferries. She was actually their most reliable ferry in the route, she was always there as if she had never heard of the two-year rule for mandatory drydocking. Maharlika Dos might be in and out of service like Millennium Uno but Maharlika Cinco will always be there.

If one who doesn’t know her will think she is just another bland ferry then maybe he will be surprised if he will know that this ferry has a colorful history. Maharlika Cinco had actually bounced between routes and owners, has had a trip to the seabed, had her superstructure ripped, etc. Her bounces were actually too fast that international maritime databases has a hard time catching up with her thus it has lots of errors.

This ferry was first known as the Sata Maru No. 3 of Kinkowan Ferry KK and home ported in Kagoshima, Japan. She was supposed to be built by Mitsubishi Heavy Industries in Kobe, Japan but instead she was subcontracted to a shipbuilder that was not well-known, the Tokushima Sangyo in Komatsushima, Japan. Her keel was laid in November 1971 and she was launched in April 1972. She possessed the permanent ID IMO 7205221.

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Photo credit: To the lady in the photo

The ship is a RORO with ramps at the bow and at the stern. She measures 70.9 meters in length over-all (LOA) with a beam of 12.5 meters and a load capacity of 500 deadweight tons. Her original gross register tonnage (GRT) was 997 tons. She has a raked stem, a transom stern with two masts and two side funnels. Sata Maru No. 3 was equipped with two Niigata diesels with a total of 2,600 horsepower giving her a top speed of 14 knots when new.

In 1981, when Kinkowan Ferry quit operation she went to Nankai Yusen KK. A few years later she was sold to Badjao Navigation in the Philippines and she became the Christ The Saviour. Badjao Navigation had a route from Cebu to Samar among others but it was not really successful. Maybe like Newport Shipping that had a route from Manila to Samar she thought that it would be better if they will do a Matnog-Allen route which was growing then. By this time she was already known as the Christ The King. However, ROROs in the route multiplied fast.

Maharlika Cinco

Photo credits: Philtranco Heritage Museum and Dennis Obsuna

In time, Badjao Navigation quit the shipping business and she passed on to Luzvimin Ferry Services of the Philtranco Service Enterprises Inc. (PSEI), an intermodal bus operator with routes from Manila to Visayas and up to Mindanao where she became the Luzvimin Primo. Maybe when Badjao Navigation was still doing the Matnog-Allen route she was just under Provisional Authority (PA) because soon after Luzvimin Ferry Services started operations the ruling shipping company of San Bernardino Strait protested, the Bicolandia Shipping Lines, and pointed out that her competitor has no Certificate of Public Conveyance (CPC) or franchise.

Luzvimin Ferry Services defended itself by saying that their ferries were just meant to carry their buses. The case was first heard in MARINA, the local maritime regulatory body which has quasi-judicial powers but eventually it reached the courts (the higher court even) which held that any ship transporting vehicles must secure a franchise from MARINA. And that was the end of Luzvimin Ferry Services and the career of the former Badjao Navigation ferries in San Bernardino Strait.

In about 1990, Christ The King next found itself in Batangas under a new company, the Prince Valiant Navigation where she was known as the Mindoro Express. When she went to that new area there was also a ruling shipping company there which was even tougher in challenging newcomers and sometimes the challenge is even outside the legal plane. I don’t know exactly why but soon she was doing a route to Palawan. There she sank in Honda Bay near Puerto Princesa port.

Mindoro Express ( now Maharlika Cinco )

Photo credit: Edison Sy

It turned out she was eventually refloated and brought to Keppel Batangas shipyard where a shipping owner who later became a PSSS member caught her in cam. This was in late 1991. From his analysis, he thinks the sooty exterior in the starboard side indicated the ship had a fire. He says firefighting water on just one side of a ship can capsize a ship. The ship bore other damages too like a missing port funnel and deformations in the structure.

Mindoro Express ( now Maharlika Cinco )

Photo credit: Edison Sy

Much later, sometime about 2002, a ferry for Archipelago Philippine Ferries turned up in the Liloan-Lipata route to double their unreliable 18-year old Maharlika II. The name of the ship was Maharlika V. To almost everyone including me they thought this was just another ferry that just arrived from Japan. It seems even Philtranco bus drivers did not recognize her (or they were playing poker?). One thing though is she seems a little rusty but I think nobody thought much of it since being a bit rusty was an Archipelago Philippine Ferries trademark. And maybe nobody gave a damn as long as the ship was reliable. After all, the Liloan-Lipata route was home to unreliable ferries until Super Shuttle Ferry 5 appeared on the route.

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Photo credit: PDO-Visayas of PPA

Fast forward to December 2008, the Philippine Ship Spotters Society (PSSS) was born. With its growing photostream from the members’ contribution, it afforded members (and the world) a view of the different ships from all over the Philippines from ferries to freighters to tankers and tugs and everything in between. A member then contributed a photo of Maharlika Cinco when their family had a vacation in Southern Leyte and they crossed Surigao Strait. That was 2009.

It was here that the PSSS member who caught a photo of Mindoro Express in Keppel Batangas in 1991 realized that if the superstructure of Mindoro Express is cropped then it would look almost exactly the same as Maharlika Cinco and he alerted me. When a collage of the two was posted in PSSS the riddle of Maharlika Cinco‘s origin was solved. The two were exactly the same ship. Later, upon researching, the two ships had identical IMO Numbers and that was the final confirmation since IMO Numbers are unique numbers and only one hull can possess a particular number.

Comparison

Photo credits: Edison Sy and Joel Bado

Maharlika Cinco continued sailing but in this decade her engines were already beginning to get less reliable. Not soon after she disappeared from the route with the last news saying she was in a General Santos shipyard with an uncertain return. With Maharlika Cuatro and a rejuvenated Maharlika Dos (she was regenerated when her sister ship Maharlika Uno went to the breakers), it looked like Archipelago had no more use for her. To me, I no longer expected to see her again. Her metal before she disappeared also seemed to be on the soft side already. Soft metal plus unreliable engines plus no more use to me looked like equal to goodbye.

It was like waking to a stupor when somebody called me from Hilongos to report that discovery of an apparition of a ship in the night. The PSSS member then proceeded to investigate. She would be the Gloria V of Gabisan Shipping which has a Hilongos-Cebu route. Yes, it was a buy one, take one deal. They also acquired the Maharlika Cuatro which stopped operation in the aftermath of the Maharlika Dos sinking. He asked what was the former name of the ship. “Mindoro Express”, they said, as if they can fool the PSSS ship spotter (and our ship spotter laughed). Maybe they were ashamed to admit it was the Maharlika Cinco because Liloan is too near and the ship does not really have a sterling reputation there.

Decrepit Maharlika Cinco

Photo credit: Rex Nerves

They latter admitted a difficult sailing from General Santos City via Zamboanga (they were afraid of the rough waters in the eastern seaboard of Mindanao). The engines failed several times and they had to seek shelter and assistance. The trip took long but finally they made it to Hilongos in one piece. No, sorry, they would not honor a ship tour. It’s understandable.

After some preliminary work, Maharlika Cinco disappeared from Hilongos. From checking, PSSS members said she was not in Tayud, the great shipyard row of Cebu (she is too big not to be noticed from offshore). Then she was discovered in Liloan municipal port. They would finish the refitting there. They brought it over there since in Hilongos she would often be forced to undock if a ship is coming.

Maharlika Cinco

Photo credit: Rex Nerves

Gabisan Shipping intends to sail her in the Cebu-Hilongos route. They say one of the Gloria cruisers will be sold and the Maharlika Cuatro which is in Tayud is for sale. It seems even Gabisan Shipping, a staunch believer in cruisers is also getting aboard now in the RORO bandwagon to Leyte. After all the Cargo RORO and the other ROROs are making a killing. Speculation says she will be spruced up to be able to compete with the Graceful Stars of Roble Shipping.

This is simply a ferry that wouldn’t die and I don’t know if she has a charm embedded in her hull. If she will survive now, I just hope the MARINA plan which is fanned by some politicians and columnists that 35-old ferries will be retired will not snuff out her life. Finally.