16 Juni 2016

[160616.EN.SEA] NOL 'Too Slow To And Too Small To Adapt' To Commoditising Sector, Admits CEO

SINGAPORE's Neptune Orient Lines (NOL), whose principal holding was the container line APL, admitted it was unable to cut costs and adjust its business model fast enough in an industry where shipping services were increasingly commoditised, said its CEO Ng Yat Chung.

Speaking to the Straits Times, Mr Ng also said that without the kind of size needed to compete on costs, the best choice was to sell.

Mr Ng was speaking before the announcement that the company's major shareholders had accepted the US$3.38 billion offer from Marseilles-based CMA CGM in a deal that is expected to close on July 4.

This move means CMA CGM has completed the acceptance condition in its all-cash offer for NOL, making the offer wholly unconditional.

With Temasek and its affiliates' 66.78 per cent stake, CMA CGM now has a combined 78.07 per cent of shares in NOL, which it intends to delist the Singapore company in the days ahead.

NOL will also see a change in the composition of its board of directors with the new board comprising Rodolphe Saad as chairman, Nicolas Sartini, Lars Kastrup, Serge Corbel, Ziad Tabet, Mathilde Lemoine, Ng Yat Chung, Kwa Chong Seng, Quek See Tiat and Tan Puay Chiang.

Said Mr Ng: "In this environment of extreme overcapacity and severe freight rate erosion, competition is based on cost.

"We have made good progress in that aspect, and every year we've managed to reduce our losses. Unfortunately, we haven't been able to cut costs fast enough to offset the collapse in freight rates, " he said.

He noted that NOL's past successes were built on its business model as a premium service line, so its costs were always higher than rivals.

"But the world has changed," he said. "The market growth has slowed down, there is severe overcapacity, so we had to recognise that the business model needed change. We didn't have the right cost position in an industry that was becoming more and more commoditised.

"There were arguments that when the cycle turns, things will be okay. Unfortunately, this time, the down-cycle is probably as deep and as long as anyone can remember. And we didn't have the scale," Mr Ng said.

He said the decision to sell NOL only came after exploring all other options - including buying another shipping firm. But with NOL holding a 2.5 per cent market share compared with the bigger players having an 8-10 per cent share, the level of investment was too great for the current competitive environment to justify," he said.


Source : HKSG.

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