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.

Maharlika I

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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A Tale of a Slow Double-Ended RORO

This ferry is more appropriately named as “double-ended ferry” and not “double-headed ferry” like the preferred name in Japan as she does not have two separate bridges or pilot houses like the dead Super Shuttle Ferry 2 although technically she might have dual controls like the other double-ended ferries in the country which number over a dozen including local-builds. But like most double-ended ferries she is slow as having having screws at each end means a lot of drag and thus lower speed. The low speed might also be due to the transmission gearing. If she was designed to cross very narrow channels of water then providing acceleration off the port, the “pull”, might have been given more weight and not the cruising speed.

The ferry is the Lakbayan Uno which is infamous in its routes for its low speed. She might have had 910 horsepower from her Yanmar Marine engine originally but her design speed, her speed when she was new was just 7.5 knots! With such speed a ferry should not have been used in a route such as she had cruised most of her career here, the Bacolod-Dumangas route as such low speed would tell on her and there is no way the passengers and shippers won’t notice as she has competition that are way faster than her. If there is no meaningful discount on fares and rates then as we say it lalangawin siya (there will be few patrons).

Lakbayan Uno originally came to the country in 2000 as part of the contingent brought in by Philtranco in their attempt for horizontal integration. Pepito Alvarez, the great land transport mogul of the recent era has just taken over Philtranco and with his Nissan UD national franchise and Number 1 ranking in buses sold, he was refleeting the old moribund Philtranco South Enterprises Inc. (PSEI) which were formerly equipped with Hino buses that were already all worn down and depleted in numbers through the loss of the old units with bad maintenance and inside irregularities.

I am not really sure which company really owned Lakbayan Uno at the start. What is known through PSSS contributions and through maritime databases is she was part of the three-vessel acquisition in 2000 which all featured double-ended ROROs, the other two being the sister ships from Aki Line of Japan which became the Maharlika Tres and Maharlika Cuatro which were still relatively new when acquired. Lakbayan Uno was the oldie in the group having been built way back in 1973. But the acquiring company could have originally been Philharbor Ferry Services (and that brings us to the trouble of having many legal-fiction companies). At the start she might not have been under the Archipelago Ferries Philippines Corporation.

Lakbayan Uno did not last long under that combine and in 2001 she became part of the still-respectable fleet then of Millennium Shipping which still had LCTs (which later ended up with Maayo Shipping serving the Negros-Cebu connection). Under Millennium Shipping, Lakbayan Uno tried to shore up the Millennium Shipping connection between Ozamis City and Tubod, Lanao del Norte that was spanning the narrow Panguil Bay.

Millennium Shipping originally bridged Panguil Bay from the port of Tubod to the port of Silanga, Tangub City, a very, very short distance. That was the original RORO connection across Panguil Bay. However, when Daima Shipping built their own port and connected direct to Ozamis City, the Millennium Shipping connection was trumped (along with the across-the-Panguil connection of Tamula Shipping featuring small cruisers).

Millennium Shipping tried to counter by building their own port in Tubod and linking direct to Ozamis. To avoid congestion in Ozamis port which had limited docking space they built their own wharf adjacent to the Ozamis PPA port. However, their transit times are longer, their private port in Tubod was located further west (while most of passengers and vehicles come from the east).

Besides those, their route is longer and using LCTs exacerbated the deficiency as LCTs were slow and passengers complained of the inferior passenger accommodations aggravated by the long use already. Meanwhile, competitor Daima Shipping was using then-novel double-ended ferries which had airconditioning for such a small upping in fares.

That was the reason why Millennium Shipping brought in Lakbayan Uno to the Panguil route. However, she was not able to stem the tide of rout. She was slow, her transit times were longer and the killer was Daima Shipping has far too many ferries than them and it gets full easy and so departure times were fast as they can offer 20-minute intervals even then while Millennium Shipping offers hourly departures. If they accelerate the departures they risk sending out nearly-empty ships. But over time that what was what happened – nearly-empty ships sailing and so they quit operations in Panguil Bay and sold their LCTs.

Lakbayan Uno then found itself in the Bacolod-Dumangas route (and she has been there ever since). At the start she might have been a match for the basic, short-distance ferry-ROROs of Montenegro Lines except for the speed. But in the succeeding years better competitors arrived in the route and she was being badly overwhelmed.

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And that brings me having a cocked eye on Millennium Shipping which was reduced to two-ship fleet, the other the very old and antiquated Millennium Uno which is also heavily outmatched in her route and also very slow. The company bears the name Floirendo which is respected and is a heavyweight in the Banana Country of Davao. Everybody knows they are loaded but why such an underwhelming shipping company and ships derided by many? Why, his PhP 75 million donation to the campaign of then-Mayor Duterte would have been enough to buy a good short-distance ferry-RORO or two.

Lakbayan Uno might not have been that bad but the problem is she is assigned a route where her weakness in speed is too exposed. But then I don’t know of many routes now that are very short where that won’t be exposed. Maybe Davao-Samal but they never seriously threw a look in that route. If they put Lakbayan Uno in that route it would have been superior to the Mae Wess LCTs then.

Lakbayan Uno was built in the Japan as the Shigei Maru No. 11. She has two sister ships in the Philippines, the Shigei Maru No.7 and the Shigei Maru No. 12 which are known locally as the Swallow-I and Swallow-II of Daima Shipping. The latter is the former Our Lady of Mediatrix which was heavily damaged when two of it loaded Super 5 buses were car bombed and she caught fire (she was rebuilt by Daima Shipping over several years). So when she was in Panguil Bay then, Lakbayan Uno used to see her sister ships.

All the three sister ships were built by Kanbara Shipbuilding in Onomichi, Japan. Their dimensions are also about the same. More exactly, Lakbayan Uno‘s external dimensions are 33.8 meters in length over-all, 29.9 meters length between perpendiculars, a breadth of 10.0 meters and a depth of 2.9 meters, very common measurements of a short-distance ferry-RORO but they happened to be double-ended ROROs. With such external measurements, a rolling capacity of 6 trucks or buses maximum is expected. If sedans it will be a little more.

Lakbayan Uno‘s dimensional weights are 221 in gross tonnage and 92 in net tonnage with a load capacity of 170 deadweight tons. She has a passenger capacity of about 200 all in sitting accommodations. She has two ramps, bow and stern, a single car deck, a single passenger deck, a bridge amidship and only one mast. Amazingly, her sisters ships here has even less power than her but their design speeds are higher! The ID of Lakbayan Uno is IMO 7370399.

In this decade, Lakbayan Uno is not only infamous in lack of speed in Bacolod-Dumangas but also in showing unreliability and at times she is not even sailing that some ship spotters in seeing a photo of her in that pose inevitably ask. Recently, however, Lakbayan Uno was re-engined, a declaration of intent by Millennium Shipping that they are not ready to let her go. Well, if they will let go of one it would have been Millennium Uno, probably the oldest RORO around that is not an LCT and barring Star Ferry II which was a cobbled ship from Ace-I.

The new engine of Lakbayan Uno is a Weichai WP-12C-450 from China and it is rated at 450 horsepower. Her new speed is 9.1 knots, an improvement over her design speed. There is a claimed reduction of fuel consumption from 117 liters/hour to 35 liters/hours. Now that is outstanding! That will probably be the life saver of Lakbayan Uno. With a fuel cost of probably only P2,000 per voyage (P70 liters x P27.50/liter of diesel), well, that could be one truck charge only. Who was it who told me RORO rates in Samal are just OK (and I told him it was sky high)? Baka pa nga tubong-lugaw ang operasyon ng ROROs as long as walang nakawan. And of course beyond the speed and lower fuel consumption, a new engine’s contribution is reliability.

Lakbayan Uno is still in the Bacolod-Dumangas route. She has been there since she left Panguil Bay. I hope that somehow she survives the fierce and better competition there (she will with that low fuel consumption!) Well, with a Floirendo as owner they might not really be expecting profits from the ship anymore. If the goal is only to keep the ship alive and to be able to pay the crew then maybe there will be no temptation to sell especially to the breakers.

As a last resort they can bring that home to Davao. Samal still lacks ferries, always been. With tourism and being a get-away place of Dabawenyos, an upward demand has always been the pattern. She will be welcome, I guess.

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Photo Credits: Carl Jakosalem, Britz Salih, John Carlos Cabanillas