MAY 12, 2000 VOL. 26 NO. 18 | SEARCH ASIAWEEK

Patrick Lim

One Foot Out Of The Water
NOL aims to be not just a shipping giant
By ASSIF SHAMEEN Singapore

Fleming Jacobs has a big job. Last year the Danish executive left shipping giant Maersk to take the helm of Singapore's Neptune Orient Lines. His task: to stop state-controlled NOL's losses, totaling $460 million in 1997 and 1998, and give the world's seventh-largest container line a major upgrade. "We want to be seen as an efficient global transportation group," the 56-year-old CEO told Asiaweek. To be exact, he aims to use computer systems to make NOL a logistics player, providing large multinationals with full transport services and management to move goods and raw materials all over the world.

But first, mop up the red ink. NOL had racked up huge losses following its $825-million takeover of APL of the U.S. (formerly American President Lines) three years ago. To pare debt, Jacobs sold parts of APL that didn't fit into NOL's core business; he also raised $500 million in new equity. He used the cash to slash borrowings from $4.1 billion 18 months ago to $2.7 billion. "I am still not comfortable with that level," says the CEO. "But we can pay this down with our profits over the next few years."

A turnaround has begun. NOL netted $93.5 million on revenues of $4.26 billion last year, and analysts forecast a bottom line of $120 million for 2000. Next step: upgrade management for efficiency and the logistics vision. NOL hired seasoned managers let go by merging shipping companies, like Maersk and SeaLand, which combined into one last year. Many new hires are top names in information technology and logistics management.

NOL also wanted to better integrate its two disparate halves - a Singapore state enterprise and a private U.S. shipping line. "We now have a united organization and a strong management team with common goals," says Jacobs. NOL is getting its act together just in time: the cyclical container shipping business may become less buoyant as new capacity comes on stream. NOL itself has ordered eight ships to arrive over the next two years, and will be chartering more vessels with options to buy. Its capacity will rise nearly 25%, mostly in larger, more efficient ships.

For Jacobs, "one should balance the capacity increases with higher trade," due to the U.S. boom and Asia's export-driven recovery. Since a major global recession is unlikely, he expects strong growth. But it's in the New Economy and new businesses where he hopes to carve out NOL's future. Transport companies all over are focusing on logistics, using sophisticated software and efficient management. With the APL buyout, NOL got a strong logistics brand and presence, which has been growing 20%-25% a year. It has also hired U.S. firm Mercer Management Consulting to help develop its logistics strategy.

Charles de Trenck, an analyst at Salomon Smith Barney in Hong Kong, explains the plan: "NOL is a well-managed company refocusing its business from the purely physical transportation of goods to an integrated logistics service which covers all parts of the supply chain spectrum, from taking the goods from a factory in China, to delivering them to a department store warehouse in the U.S." To that end, says Trenck, "the restructuring that NOL has gone through is quite amazing." Of course, it was helped by a rebound in its shipping business, thanks to the Asian rebound. He adds that the line has spent a lot on information technology, even retaining McKinsey & Co. for advice on e-commerce. "With its huge investment in IT," he says, "NOL will probably enjoy better margins than companies that haven't."

But does it need huge ships and a large workforce to be a major logistics player? "Companies without the infrastructure to ensure fulfillment may not be as successful," argues Jacobs. "We want total capability, of which only a part will be shipping." What about competing with online logistics players with minuscule overheads? Jacobs points to NOL's 80,000-plus regular clients worldwide, "which other new logistics players looking for eyeballs don't have." He adds: "Many customers are trying to cut the number of suppliers they do business with, so that they can manage costs better. Customers are focused on the total supply-chain solution, rather than just putting a container on the next available ship that undercuts others by a few dollars."

Nonetheless, it is IT that Jacobs sees as the key to NOL's future. "We embraced the Internet long before it became fashionable," he says. "We are using it to change our relationship with customers. The Internet paves the way to eliminate waste and inefficiencies in the supply chain. We now offer customers a wireless platform to access our system from anywhere, anytime." Analyst Rachel Mui of Daiwa Institute of Research in Singapore agrees: "NOL's stock price has suffered because it was seen as an old-economy company. It is a wrong perception. NOL has used technology more than most shipping companies."

Of course, IT works best with a company that can actually deliver a full range of services. "Long-term relationships with clients now depend on whether you can serve them wherever they have a particular need," says Jacobs. "Airlines and even auto companies are creating alliances. The shipping industry is going the same way. Companies are reviewing how they can cut costs to become more profitable and pass on cost advantages to customers." His prediction: "Our logistics will rival, perhaps even surpass, our ocean liner business by 2005." Definitely, NOLis no slow boat to China.

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