Learning To Be Commercial

By the early 1980s the regional government-run Pacific Forum Lines looked like it was dead in the water. Now it's become a profitable enterprise, still majority owned by the governments of Samoa, Fiji, New Zealand, Tonga, Nauru and PNG. Six other Pacific countries hold minority stakes.

What happened?

The Pacific Forum Lines began operations in 1978 as a cooperative venture of South Pacific governments to solve some of the shipping problems of small Island states. According to current CEO John McLennan, who started with the company 23 years ago as a trade manager, "Once the politicians decided to run with the idea of regional shipping, everything began heading for disaster very quickly."

Photo: PFL

Undercapitalized from its founding day, the New Zealand government had to step in almost immediately to "guarantee the overdraft" of the foundering maritime enterprise. Finally, says McLennan, in the early 1980s the Island government board members realized they had to do something dramatic or scuttle the whole operation. So they chose to do what most governmental bodies do when they're in a fix: They commissioned a study.

The London-based firm of Touche Ross did a thorough evaluation of the Forum Lines business model and operations and, for once, the product of a study did not just sit on the shelf. The Forum Lines board of directors took to heart the study's two main recommendations. According to McLennan, "they said that the company had to be sufficiently capitalized and that it had to focus on commercially viable routes." To recapitalize, the company approached the European Investment Bank and got enough money to work with. Then the board, recalls McLennan, said, in effect, "You're on your own, fellows, make it work!"

“Once the politicians decided to run with the idea of regional shipping, everything began heading for disaster very quickly.” —CEO John McLennan. Photo: PFL

Since that time, McLennan says, "We've had a completely commercial focus." As the company became financially seaworthy, it also began to expand within the shipping niche it knew well, adding stevedoring, container handling and freight forwarding to its businesses. As early as 1985, it was able to declare its maiden profit. And the PFL has turned a profit in four out of the last five years and is paying dividends to its government investors. It continues its growth, having just committed NZ$1.5 million for land near the Auckland airport for a large container facility.

The company has also had two new ships built in China in 2001 and 2002. The Forum Samoa II and its sister ship the Fua Kavenga are both modern, self-contained vessels that are adaptable to a variety of shipping needs. The PFL charters them with an option to buy and is able to insist that its vessels are crewed by Pacific Islanders. The PFL owns about two-thirds of its vessels and charters the rest.

Summarizing the traffic in the region and the routes that have turned out to be commercially successful, McLennan says, "The main cargo flows are from Australia and New Zealand to PNG and the other South Pacific countries. Fiji produces significant amounts of sugar, cement, garments and water. We used to carry a lot of taro out of Apia, but that was before the taro blight. Our 15-day service from Apia to Australia has also allowed the largest manufacturer in Samoa to be commercially viable." The Yazaki Samoa wire harness plant ships its product to Australia to become part of the final car assembly. "That plant employs 2,500 people," McLennan adds.

"The key to our success has been our commercial focus. We've had a good run in the last five years, but we still face the challenges of long distances and low margins. We just have to be smarter than the other guy."