APL Logistics targets aggressive expansion

APL Logistics, part of Singapore's Neptune Orient Lines (NOL), hopes to manage the supply chains of some of the world's biggest companies. It's going to have to if the business' revenues are going to match those of the APL Container Shipping operations in three years' time, as planned. In 1999, APL Logistics accounted for $372 million, or 9%, of NOL's $4.28 billion revenues, while APL Container Shipping contributed $3.29 billion.

To achieve its target, NOL will invest $150 million over the next three years in APL Logistics. The funds will come from the $500 million raised in a July 1999 placement of 447.5 million shares at S$1.90 ($1.09) each. Since April, NOL has hired Mercer Management Consulting and McKinsey to work on APL Logistics' strategy and e-commerce operations. In addition, the company has brought in Dick Metzler as the new chief executive officer of APL Logistics. Metzler was most recently president and CEO of Keystone Internet Services, an e-commerce logistics business in the US.

So far, investors are buying the story. Since Metzler's appointment was announced, NOL's shares have jumped from a low of S$1.57 to a high of S$1.91. The stock last traded at S$1.82.

Metzler says APL Logistics will be targeting companies with a minimum turnover of $200 million, or the ability to achieve that level very quickly. Much of the business will come from retailers and e-tailers, primarily those currently handling logistics themselves. "Clearly the larger companies, especially in industries such as auto, retail/apparel, consumer electronics and chemicals are a big part of our market," he says. "If you look at a pie chart, far and away the biggest slice is people cobbling together an e-supply chain - in other words in-house solutions - and that's far and away the biggest opportunity for us in all likelihood."

End-to-end service

Metzler says APL Logistics will offer a fuller service than the likes of DHL and Federal Express (FedEx), which he considers "boutique logistics" operators. "Generally it [what DHL and FedEx do] isn't logistics, it's value-added distribution. They bolt on a warehouse to the front-end of their express service," he says. "We're after a bigger bite of the supply chain. We go all the way back to the source where it's manufactured, and that's a whole different deal altogether. For us it's not just the small, high-value items. It's much more about providing the entire product stream that goes within the four walls of a store or within the four walls of a dealership."

He adds: "We're doing most of it already. It's just a matter of lengthening this concept of the supply chain, based upon what our customers are telling us to do that nobody is doing." In part, what's driving APL Logistics' expansion is a shift in potential customers' focus towards revenues and away from costs. Metzler says retailers, in particular, are keen not to miss out on sales opportunities because this is ultimately far more detrimental to these companies' earnings  than having a costlier but more 'time-definite' supply chain.

To build and integrate such a supply chain, APL Logistics will utilize the APL Container Shipping fleet and ensure the business has efficient, comprehensive distribution and customs clearing operations on the ground, through acquisitions and/or joint ventures if need be. "One reason I think there's so much leverage in this business is because we control the gnarliest end of the supply chain - that's been our strength from the very beginning," says Metzler.

If successful, APL Logistics is likely to be spun off from NOL and obtain a separate listing in about three years' time.