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.

1984 0915 MV Philtranco Ferry I

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?

When RORO Reigned Supreme

Retrieved from the Old PSSS Website
written by: Mike Baylon

RORO means Roll-on, Roll-off. As distinguished to LOLO (Load-on, Load-off or Lift-on, Lift-off), RORO has cargo ramps and car decks and cargo is not lifted but loaded through vehicles that have wheels. Unlike cruisers that have cruiser sterns ROROs generally have transom sterns.

True ROROs started arriving in the Philippines in the 70’s. This does not include the LCTs which are also ROROs in their own right. The very first RORO could have been the “Millennium Uno” of Millennium Shipping. Japan database shows she arrived in the country in 1973. She is still sailing the Liloan-Lipata route.

Millennium Uno ©Mike Baylon

After some lull the next true ROROs arrived starting in 1978 with the “Northern Samar” of Eugenia Tabinas Shipping Lines of Tabaco, Albay which was fielded in the Sorsogon-Samar route. The next to arrive could be the “Laoang Bay” of Newport Shipping in 1979. This ferry was also later known as “Badjao”, “Philtranco Ferry 1” and “Black Double”. MARINA database also shows “Viva Penafrancia – 9” of Viva Shipping, a steel RORO was built locally in Quezon in 1979.

Starting in 1980, arrivals of RORO in the Philippines stepped up and many even arrived that year while cruiser arrivals began to dry up. In 1980, the “Dona Lili”, “Dona Josefina”, “Don Calvino”, all of Gothong Shipping and the “Sta. Maria” of Negros Navigation arrived. The “Eugenia” of Eugenia Tabinas Shipping seems to have arrived this year also. In 1981 the Melrivic 7 of Aznar Shipping in Cebu came.

The first RORO built by the Philippine government to connect the Maharlika Highway, the “Maharlika I” came in 1982 and she was fielded in the Matnog-San Isidro route connecting Sorsogon and Samar. The second of the series, a sister ship, the “Maharlika II” came in 1984 and was fielded in the Liloan-Lipata route connecting Leyte and Surigao thus completing the Maharlika Highway connection. [Nothing is implied here that in was only in this year that Luzon, Visayas and Mindanao were connected as claimed by some.]

Maharlika I ©Edison Sy

Many of the first ROROs were small. The liner companies did not dominate the first arrivals. It seems it is the provincial short-distance island connectors that first truly appreciated the RORO.

After a very short lull the next batch of ROROs arrived and they appeared in Batangas in the mid-80s. This was spurred by the arrival of “Tokishiho” (later “Emerald I”) of Manila International Shipping Lines to which the dominant Viva Shipping Lines of Batangas immediately countered with the “Viva Penafrancia” in 1985.

The first big RORO liners to arrive that rival the size of the big, fast cruisers were the “Sweet RORO” (1982), “Sweet RORO II” (1983) of Sweet Lines and the “Sta. Florentina” of Negros Navigation in 1983.

Sweet RORO ©lindsaybridge

Sulpicio’s entry to the RORO mode started in 1983 with two modest-sized ROROs, the “Surigao Princess” and the “Butuan Princess” which later became the “Cebu Princess”. William Lines’ foray in RORO started only in 1987 with the “Masbate I”. This was followed by the “Zamboanga” in 1989. WLI’s entry in this field was relatively late and they paid with this by relinquishing the number 1 spot in the local shipping pecking order.

Before the 80s ended Sweet Lines has further added “Sweet Home” (1984), “Sweet Faith” (1987), “Sweet Baby” (1987) and “Sweet Pearl” (1989). Sulpicio Lines has also added “Boholana Princess” (1986). Meanwhile, Gothong Shipping already added the “Dona Cristina” (1985), “Our Lady of Guadalupe” (1986) and the sisters “Our Lady of Fatima” and “Our Lady of Lourdes” both in 1987. Aboitiz Shipping meanwhile also entered the RORO race in 1989 with the “SuperFerry 1”.

For a short time it was Gothong Shipping and Sweet Lines that was battling for superiority in the RORO field. However, in 1988 Sulpicio Lines added 3 big RORO liners that dwarfed all previous examples starting with the “Filipina Princess”, then one of the biggest and fastest ROROs in the world, the “Nasipit Princess” and the “Tacloban Princess”. They also added in that year the “Cagayan Princess”. With these additions Sulpicio Lines guaranteed they can never be headed in the RORO field and that stood true until WG&A came along.

Filipina Princess ©Vincent Paul Sanchez

Before the end of the 80’s, a Visayan-Mindanao shipping company also bet big on RORO and this earned the company number 1 in pecking order in that area. Trans-Asia Shipping Lines bought 5 RORO – the “Asia Korea” (1987), the “Asia Thailand” (1987), the “Asia Japan” (1988), the “Asia Brunei” (1989) and the “Asia Taiwan” (1989). They disposed some ROROs later (but always with replacements) until their progress was impeded with the creation of Cebu Ferries Corporation.

Meanwhile, smaller ROROs also sprouted in the same period in the provincial routes starting with the “Princess of Antique” (1985). Among the others are “Danilo 1” (1987) and “Danilo 2” (1988), now the “Lite Ferry 1” and “Lite Ferry 2”, respectively, the “Dona Isabel II” (1988) which was later known as “Bantayan” and now “Siquijor Island 2”, the “Princess Mika” (1988), the “Luzviminda” (1988), the ‘Stephanie Marie” (1989) of Aleson Shipping in Zamboanga, etc. In Batangas the likes of “Sto. Domingo” (1988) and “Viva Penafrancia 3 (1989) came and this was followed by a slew of Domingo Reyes ROROs in the next years until they dominated that port.

Lite Ferry 2 ©James Gabriel Verallo

With that big statement of Sulpicio in 1988 the other long-distance liner companies have to respond and bigger and faster RORO liners came in the 90’s. William Lines created their “Mabuhay” line of luxury RORO liners and aided with their “Maynilad’. Aboitiz Shipping created their “SuperFerry” line. Gothong Shipping converted two RORO cargo ships and out came the “Our Lady of Sacred Heart” and “Our Lady of Medjugorje” augmented by the their big “Our Lady of Akita”. Negros Navigation continued their “Saints” series and out came the “Sta. Ana” (1988), the “Princess of Negros”, the “San Paolo” and the beautiful “St. Francis of Assisi” to be followed by the sisters “St. Peter the Apostle and “St. Joseph the Worker”. Meanwhile, Sweet Lines was not able to keep pace and soon dropped out of shipping in 1994. Also dropping out of passenger shipping were the lesser long-distance ferry companies which were not able to refleet to RORO. These were the Escano Lines and Madrigal Shipping.

Our Lady of Medjugorje folio ©John Michael Aringay

Sulpicio meanwhile did not rest on their laurels in the first half of the 90’s. They topped their “Filipina Princess” with the “Princess of the Orient” (1993) and they also rolled out the formidable “Princess of Paradise”, the speed queen of the era. Also added to their fleet was the “Princess of the Pacific” and the lesser “Manila Princess” and “Tacloban Princess”. At the middle of the 90’s there was no question then which was biggest shipping company in the Philippines.

There was also no question that the previous decade ended with ROROs already beginning to dominate long-distance passenger shipping. However in other provincial ports, save for Batangas maybe, the RORO is not yet dominant.

The Sulpicio Lines hegemony of the early 90s suddenly changed with the merger of 3 major shipping companies to form the “William, Gothong and Aboitiz” or WGA which suddenly topped the fleet of Sulpicio even though it remanded lesser and older ships to subsidiary Cebu Ferries Corp. CFC then became the scourge of the Visayas-Mindanao shipping companies, most of which except for Trans-Asia Shipping were just in the very beginning of the RORO era like their Zamboanga counterparts.

Among those absorbed by the merger were the ships then underway or under refitting like “SuperFerry 12”, “Our Lady of Akita” which became “SuperFerry 11” and later “Our Lady of Banneux”, “Our Lady of Lipa”, “Mabuhay 5” and “Mabuhay 6” which later became the “SuperFerry 9” and “Our Lady of Good Voyage”, respectively. In the year of that merger, Sulpicio Lines responded with the “Princess of the Universe” and “Princess of the World” and Nenaco responded with the “San Lorenzo Ruiz” and the “St. Ezekiel Moreno”.

The gap between WG&A and Sulpicio Lines and Nenaco was actually narrowing before the end of the millennium as WG&A was intent of selling their “excess” and old ships and it not add any ship to their fleet until 2000. Meanwhile, Sulpicio Lines rolled out the “Princess of the Ocean” and “Princess of the Caribbean”, both in 1997 and the grand “Princess of New Unity” in 1999. Nenaco also added what turned out to be their flagship, the “Mary, Queen of Peace” in 1997.

Princess of New Unity ©britz444
Mary, Queen of Peace ©Rodney Orca

In the provincial routes and ports the millennium ended with the RORO becoming dominant already. On its heels came the long-distance buses and trucks and the delivery trucks of the trade distributors. It can also be said that the requirements of these buses and truckers fuelled the growth of the short-distance ROROs connecting the nearer islands.

RORO liners primary carried container vans in trailer beds. Short-distance ROROs meanwhile primarily carried trucks, buses, jeeps and private vehicles. Overnight ROROs however primarily carried cargo LCL (loose cargo loading) or in pallets. Forklifts were the primary means of loading the cargo. Others call this system break bulk.

If the 90’s were marked by vibrancy and rapid expansion in the long-distance, liner section of shipping the past decade was marked by a long steady retreat of local long-distance shipping and with it the ROROs. This retreat was marked by 2 major spasms — the illiquidity of Nenaco and the suspension of Sulpicio Lines in 2008 after the capsizing of the Princess of the Stars. ROROs were sold and for varying reasons.

Nenaco can’t sustain its expanded route system and their ROROs were laid up and threatened with seizure by creditors. WG&A just wanted to get out of routes they deem were not earning enough. Moreover, Aboitiz has to pay off the divestment of William (the Chiongbian family) and Gothong from the merged company. Then world metal prices peaked and they cashed in on the bonanza. Sulpicio Lines meanwhile decided to sell their ships laid-up by the suspension.

Aside from external problems the long-distance shipping industry was also beset last decade by external threats. Early in 2000’s, the long-distance buses and trucks began to challenge the liners. This began in Samar-Leyte-Biliran. The leading shipping company, WG&A immediately retreated and left the three islands. Soon Masbate and Bohol was also under siege by the buses and lost.

A major factor in that development was the deregulation of the bus sector in the Bicol region and Eastern Visayas. The effect is bus companies sprouted like mushrooms, each seeking more routes, giving wider coverage. As a result passengers need not go to the major centers anymore and it offered the convenience of getting off right by their gates. Moreover, it has also the convenience of a daily departure and a wide choice of buses. As deregulated areas the bus companies were to free to offer low fares and freebies like free ferry fare.

In 2003, the overland route to Panay via Mindoro opened. In a short time came the influx of the buses, trucks and jeeps. The shipping routes to that island were soon under siege. If Nenaco’s withdrawal can be excused by their illiquidity, the leading shipping company, WG&A again simply withdrew without much struggle and just held on to Iloilo port where they are under siege again now. Like in Samar-Leyte-Biliran-Masbate-Bohol this Panay withdrawal of WG&A resulted in selling to the breakers of good ROROs for scrap.

Dangay Port, Roxas, Oriental Mindoro ©Mike Baylon

The second major threat that emerged in the last decade was the emergence of regional container lines to major provincial ports. This provided direct access to foreign markets. And once a direct route is established loaded and empty container vans no longer have to be transshipped via Manila. Before this, the transshipment business was a big source of revenue for long- distance shipping.

Now an even more ominous development is the start of the chartering of banana growers of their own container ships. With their own ships they are no longer dependent on the routes of the container lines. Whereas now if a container line has no route to a certain market country of theirs then they still have to transship via Manila and use the local long-distance liners.

Sasa Port, Davao City ©Aristotle Refugio

A minor threat as of now to long-distance ROROs is the emergence of LCTs as carriers of container vans. But a bigger threat is the inroads of long-distance trucking in the Visayas and Mindanao. The root of the problem is the high cost of charges via long-distance shipping and so they lose out.

Budget airlines will also take out some revenues from long-distance shipping. This is not critical because the bread and butter of long-distance shipping is cargo operations.

One beneficiary of these developments is the short-distance RORO sector which makes possible the island-hopping of the trucks, buses, jeeps and private vehicles. This sector is growing consistently while the long-distance sector is shrinking.

Mukas Port ©Raymond Lapus

For the present, the sector of RORO liners is in crisis. Only ten long-distance RORO liners are left sailing in the country as of now.

The overnight RORO ferry sector is yet unaffected. The only affected portion of this is the companies with routes to Mindoro and Romblon.

The ROROs have eclipsed the cruisers. But the growth sectors now are the short-distance and overnight ferry sectors of the ROROs.