To find out what shippers can expect from one ocean transportation company that has led the call for more intermodal cooperation, GL&SCS recently spoke with John Bowe, president of the Americas for APL, the 160-year-old ocean carrier based in Oakland, Calif. APL is the container liner subsidiary of Neptune Orient Lines, Ltd., the Singapore-based global transportation and logistics company that also owns APL Logistics, one of the largest 3PLs in the world.

Q: For many years, APL primarily served the Asia-North America trades. What is your global coverage now, and how do you see it developing in the future?

Bowe: Our biggest global business is still the Asia-U.S. trade, which accounts for slightly more than half of our revenue. Of course, all NOL liner services are known as APL, so we now operate worldwide. The Asia-Europe trades are our second-largest piece of business, and this is very strong. The next-largest piece of business is our trans-Atlantic trade. We also have major services from Asia to the U.S. East Coast. Latin America right now is a small part of business in terms of revenue, but it is growing quite rapidly. In Latin America, we operate both North-South routes as well as East-West routes, principally to and from Asia. We are a major player between Asia and Mexico. We are also beginning to develop services around Panama as a transshipment point to connect our worldwide services with the East and West Coasts of South America. This is a growing business. We have considerable service to and from the Middle East where our business from Asia to Egypt has become substantial, but we are not a major operator for the rest of Africa. We have limited coverage in Djibouti and East Africa. We also have intra-Asia service and an Australian service.

Q: NOL recently announced that it has contracted for eight new 10,000-TEU vessels to be built in South Korea and delivered in 2011. Could you tell us more about how these vessels will fit into your network?

Bowe: These vessels will be operating between Asia and Europe. We look at our deployment worldwide. We think the larger 10,000-TEU vessels fit best in Asia-Europe trades because business there is very strong right now. The 10,000-TEU vessels are also better suited to European ports, which are farther ahead than the U.S. in terms of draft and terminal capabilities to handle very large ships. In the U.S., most terminals are not yet set up well for such large ships.

Even though these large vessels will not be serving the U.S., our deployment should create opportunities for increasing U.S. capacity by cascading the ships now on the Asia-Europe routes toward the Americas. The result will be more capacity for the U.S. market.

Q: While carriers such as APL may be increasing their vessel capacity, often with larger ships calling at fewer ports, many shippers are still experiencing congestion and delays. What is being done to solve port congestion and inland intermodal problems?

Bowe: Intermodal and infrastructure issues are close to our hearts. We have spent a lot of time trying to raise awareness of the challenges facing the global intermodal transportation system, particularly in the U.S. We see a high growth rate of containers coming into the U.S., but this growth rate is not matched by developments in the intermodal system. Containers must move smoothly through port terminals onto truck and rail carriers. Trucking capacity in port areas is still a problem, as is the rail system that moves containers inland. The entire system is not growing anywhere near the rate of demand, and we do not see any improvement in the near future.

We need to find ways to get all participants in the system to invest and grow capacity, but until that happens, there will be greater pressure to develop cooperative partnerships between the carriers who operate the supply chain and the companies that use it, especially the large retailers. The intermodal system has always been a challenge to operate predictably and reliably, and given the increased volumes that have to move through it, there must be more cooperation between the buyer and seller of transportation services.

Q: Where do the responsibilities lie for these intermodal improvements?

Bowe: Everybody has to step up. State and local governments and port authorities have to be clearer with carriers like us about rules for expansion. Environmental concerns are important, but we need to find a way to balance these concerns with the requirements of our industry to grow and to serve the businesses and consumers that rely on containerized transportation.

The U.S. government needs to take a leadership role because the global supply chain is more than just a series local ports and transportation routes. It is a national system. The federal government should encourage more infrastructure investment, particularly by the railroads. Their capacity to move containers smoothly is critical to businesses and consumers. Productivity is a factor as well, which means maritime management and labor need to encourage solutions that increase productivity. There are many stakeholders in this game.

Q: While everyone agrees investments must be made, who is willing to make them?

Bowe: We are talking about very big numbers. The major railroads' capital plan is now measured in billions each year. There are many public projects that run into the billions to open up corridors and allow traffic to move between modes.  Ocean carriers such as APL are making large investments. Our company, for example, has to provide a string of ships across the Pacific to produce weekly service. Such a string is at least five ships, which costs more than half a billion dollars. The investment we have to expand our container terminals is in the hundreds of million of dollars, and we are just one operator. The scale of investment we are talking about is so great that all parties have to work together.

Q: Manufacturers and retailers have global supply chains linked by carriers such as APL. With all of the inherent risks that come with such extended supply chains, what assurances can you provide your customers that these supply chains are reliable?

Bowe: We have proved to our customers that we can perform reliably in a challenging environment. We manage our vessels according to a schedule that customers can rely upon. On the U.S. West Coast, we manage our own terminals, so even in a congested environment, we are able to deliver on our promises. That is our commitment to customers. We have invested in container terminals and on-dock rail facilities, so we can deliver container trains to the railroads ready to roll. Our customers do not have to move through crowded public rail ramps where service cannot be managed. We work closely with the railroads that operate our container trains, and measure their performance. We have certain agreements with these railroads that allow us to keep our delivery commitments and we manage these very closely to maintain a service standard for our customers. We manage our own performance the same way our customers do. How fast are we against our own schedules? How reliable are we? It gets more difficult by the day, but we meet the standards we have set.

Q: NOL revenue increased in 2006, but net income dropped. Is it all fuel related?

Bowe: Fuel had a very significant impact on our bottom line last year. Other operating costs such as trucking and rail costs are all up as well. The overall business environment did not allow us to recapture the rising costs fully in 2006, so that impacted our margins. This year has gotten off to a good start in terms of being able to recover the cost increases that we are faced with. We are optimistic about this year and beyond. But ours is still a cyclical business. The supply-demand dynamic has changed somewhat, but carriers still have to manage their costs closely to meet margin goals.

Based on year-over-year comparisons, revenue per container dropped for the first part of 2007. More recently, we have enjoyed positive year-over-year comparisons. So, in terms of current rate making, we are seeing an upswing. The investment community has taken note of that fact. It is one thing for us to say that, but the investment community is saying the same thing.

Q: Do you see M&A as a core growth strategy for APL?

Bowe: There has been no acquisition activity at our company since NOL bought APL a decade ago. That acquisition had some difficult years shortly after the merger, but beginning in 2003 and continuing into today, the returns from that combination have been above the long-term expectations of the firm that acquired us.

NOL has a new CEO, Thomas Held, who was the CEO of Schenker, the global forwarding company. He had success in that role where he acquired companies. He has said to us from the first day that he believes in growth, but only profitable growth. He sees our company in a strong position with an Asian base, a strong franchise in the U.S. and increasing presence in places like Europe and Latin America. Whether our growth is organic or through acquisition will depend on the opportunities available to us. He is determined to make any growth profitable growth.

Our new CEO comes from a logistics services background, which should help the APL Logistics business. We have a long history in the consolidation business and are looking for ways to broaden our logistics capability, so we can expand our service to customers throughout the supply chain. APL is known historically as an ocean carrier, but we know our customers need more than that. We can provide those services though our logistics arm.

Q: What other worldwide business trends do you see impacting the ocean carrier industry in the next year or two?

Bowe: Having acknowledged the infrastructure challenge, we still see very promising global growth. World economies, especially the developing countries, are all accelerating and forming a more international marketplace. You have to be bullish on international trade, and that is good for the container business because we are a reflection of global economies. There is a growing interdependence of economies and increasing growth rate in developing areas, not just in China, but in India, Brazil, Viet Nam, Eastern Europe and so many places that are now part of the global economy that our international supply chain business will be a long-term beneficiary.