"We're New Yorkers"

"We're New Yorkers"

We're New Yorkers," says Capt. Nicola Arena, president of Mediterranean Shipping Co. (USA). "Other companies think we're crazy to maintain our U.S. headquarters here, but we thrive on the energy and the activity."

Arena takes pride in the fact that Mediterranean Shipping Co. is the only major container carrier to maintain its U.S. headquarters in Manhattan, in a building on Fifth Avenue and 37th Street that it partially owns. Other liner companies might also think the world's fastest-growing liner company gets its operating style from its sharp-elbowed New York "atty-tood." Twenty years after entering the U.S. market, MSC has elbowed its way into the No. 2 position among the world's container lines, behind only Maersk Sealand in the number of ships it operates.

"We are very happy to be a strong No. 2, like Avis," Arena said in an interview. "When we started, the other lines underestimated us, then they looked at us with surprise, and now they respect us. Now we are one of the two or three most-respected shipowners in the world. The ultimate compliment is that other shipowners consult us on operational questions."

How has MSC managed to come so far, so fast? "They're tough competitors," said William Coffey, a former Sea-Land executive and now an industry consultant based in Newport, R.I. "They offer a Chevy rather than a Cadillac service, but they provide great basic service at a very competitive price."

In 1978, Arena, a graduate of Genoa's Merchant Marine Academy and a former deck officer, became vice president of Containership Agency Inc., which represented MSC and a number of other container lines. He was named president of the agency in 1988 when it became the exclusive agent for MSC and later changed its name to reflect its new role.

"We opened the first U.S. office in New York in 1984 with just four employees and one liner service to North Europe," Arena said. MSC now has 20 offices in the U.S., with 700 employees. "Every year since we have moved up one or two positions in the list of the largest container lines," Arena said.

The company's growth in recent years is illustrated by figures compiled by the Alphaliner.com information service of ship broker Barry Rogliano Salles. They show that in 1997 MSC was in ninth place with 80 ships and a capacity of 112,931 TEUs. By Jan. 1, 2004, MSC operated 219 ships with capacity of 536,040 TEUs, representing an annual growth rate of 24.9 percent. It continues to add new and used vessels to its fleet at a rapid pace. MSC has another seven 4,900-TEU container ships on order for delivery this year and four 8,400-TEU ships scheduled for delivery in 2006 and 2007.

MSC also operates five cruise ships and 36 fast ferries in the Mediterranean. About half of its container ships are owned and half chartered. Arena said those container ships carried more than 4 million TEUs and generated $4.7 billion in revenue last year, 25 to 30 percent from the U.S. trades.

MSC was founded in 1970 by Gianluigi Aponte, who remains chief executive and co-owner with his wife, Rafaela. Like Cornelius Vanderbilt, who started his path to fabulous wealth as the captain of a Staten Island ferry, Aponte was captain of a ferryboat, which sailed between Naples and Capri. As a 30-year-old captain, Aponte used $5,000 of his own money, scraped together $275,000 in credit and bought a used 'tweendecker that he sent tramping. When the 1973 Arab-Israeli War closed the Suez Canal, Aponte bought a second ship and began service down the Atlantic coast of Africa, around the Cape of Good Hope and began calling at ports on the Indian Ocean side of the continent, up to the Red Sea and then back around to Europe.

As its business grew, MSC for almost 30 years stuck to its strategy of buying used ships. But since the late 1990s it has begun acquiring new vessels as well. "What the change of strategy has done is to give MSC a modern fleet, especially on the line-haul trades," said John Fossey, executive consultant with Drewry Shipping Consultants Ltd. in London.

Why the change in strategy? "A few years ago we decided we couldn't provide good service without good ships, without good speed, or without the right cost structure," Arena said. "At that time, charter ships cost more to run than new vessels because older ships burn a lot of fuel."

The cost of new ships, meanwhile, was declining, as South Korean shipyards were hit by competition from Taiwan and Japan. "We speeded up buying new ships as charters for older ships came to an end," Arena said. "We have 30 ships on order, all being built in South Korea. They have perfected the product and provide the right price for the right product." MSC finances most of its ships through its own resources, but also borrows from European banks and finances some through German KG partnerships, which provide tax breaks for investors.

Its more-modern fleet, however, has not changed MSC's tactics. "It still remains a multi-port caller and has a reputation of holding the ship until every last piece of cargo is loaded," Fossey said. "This sometimes means that its service reliability is poor, particularly compared to Maersk Sealand, P&O Nedlloyd or APL."

MSC also tends to be more of a port-to-port carrier than many competitors and relies heavily on non-vessel-operating common carriers. "Its rates are also highly competitive, but that is what you would expect from the type of service being offered," Fossey said. "MSC is aggressive in its contracting, and in certain ports is the largest customer, which gives it additional leverage on rates. It also interlines a lot of cargo between its line-haul links and is similar to Maersk Sealand in this regard."

While many of the other large liner companies operate services as part of global alliances, MSC prefers to remain independent of them, favoring the flexibility that such independence offers. "We believe that alliances fulfill an important role, but they are not appropriate for us," Arena explained. "We want to be able to move our ships very rapidly from one trade lane to another. We need to react quickly without having to wait to get approval from alliance partners."

MSC does not spurn all cooperation with other carriers, but has not locked itself into multi-year alliances as other lines have done. It has cooperative agreements with other carriers in several markets, notably North America-South Africa, South Africa-Far East, Northern Europe-Mediterranean and Europe-East Africa. It also participates in space-sharing agreements on the North Atlantic but is stand-alone in the trans-Pacific and Europe-Far East markets, the world's two busiest trade lanes.

"On the whole, MSC likes the flexibility of being on its own and is unlikely to join a tight operating alliance such as the New World Alliance or the Grand Alliance," Fossey said. "This doesn't appear to be the Aponte style, which is based on lean management and the ability to make decisions very quickly."

Arena said MSC's corporate culture ensures that its executives have a deep understanding of market conditions and the ability to adjust to changes. "We are all former deck officers. We all came from the sea," Arena said. "Capt. Aponte learned to become a good maneuverer of ships. As a ferry captain, you have to be aware of every ripple in the tides and every breeze and use every tool to anticipate danger and succeed."

MSC's managers use their navigational skills to steer the company through the complexities of the shipping business, Arena said. "You have to become an expert in all kinds of disciplines, such as macroeconomics, intermodal trade, finance and foreign exchange. There are so many parameters of the business you have to learn."

Arena noted that MSC anticipated the current boom in Chinese exports. Now 40 percent of MSC's cargo originates in the Far East. "We believe China is here to stay and has very stable growth of 6 to 20 percent a year," he said.

He said he sees other positive changes in Asia, including India, which "is moving strongly forward, although not in the same dimension as China." MSC has backed up that optimism with two new services to India in the last year. The first is a direct India-Europe weekly rotation with seven 7,500-TEU vessels that calls at the Port of Jawaharlal Nehru and the Mundra International Container Terminal, both on the west coast of India. The second is a weekly service between those ports and Africa.

Arena sees strong growth in the entire Asian region, especially Southeast Asia, which is becoming the manufacturing base for the U.S. and Europe. Brazil has the same potential as India, but like much of the rest of South America has never quite realized the potential because of social inequalities. "Brazil is starting to come along, but Chile is the best country in South America," Arena said, though he admits his opinion may be influenced by the fact that his wife is Chilean.

While a strong believer in globalization, Arena said MSC maintains its own technology development arm for its e-logistics service in New Jersey, where it employs software developers who may be Indian, Chinese or American. He said MSC is willing to absorb salaries that are 50 percent higher than it would have to pay if the business were outsourced to India. "But 1,000 percent higher? No."

Like most carriers, MSC provides its customers with the ability to book and track their shipments online. It is a participant in the multi-carrier Internet portal Inttra. But although it has a small logistics business, based in Antwerp, MSC is "proceeding into logistics with extreme caution," Arena said. "We don't like to compete with NVOs, which are a significant part of our business. As shipowners, we concentrate on what we do best - run ships - and our ships are full, so why fix something that's not broken? We don't believe we will ever become a logistics company."

He said some lines are making more money in logistics than in shipping, and are losing interest in shipping. "If we were to compete with 3PLs, we would be competing with our own customers," Arena pointed out. He recalls that on MSC's first sailing from the U.S. two decades ago, "100 percent of the cargo was NVO. Our original success was due to the support of NVOs, so we are loyal to our original customers."

Though MSC is known primarily as a port-to-port carrier, Arena said there is more demand to provide intermodal services, especially in the U.S., where the company moves more than 200,000 containers per year intermodally.

MSC also has invested in trucking fleets and is venturing into the business of container terminals. In March it won the bidding to build the second phase of Fos 2XL, the large new container terminal at Fos, part of the Port of Marseilles, that is scheduled to open in early 2007. It beat out Maersk Sealand to build the terminal. The first phase of the terminal, a 1,320-foot berth, was granted to Portsynergy, a joint venture between CMA CGM and P&O Ports. The terminal eventually will have 3,630 feet of quay.

MSC also owns a small stake in the container transshipment terminal at Freeport, Bahamas, which is operated by majority owner Hutchison Port Holdings of Hong Kong. About 55 MSC ships a week from South America, South Africa and North Europe call at Freeport, just 52 miles from Florida. "We can transship there to U.S. ports without worrying about the Jones Act," Arena said.

MSC fits broadly into a category of successful, family controlled container shipping companies, a group that also includes CMA CGM, Evergreen Marine Corp. and Maersk Sealand. MSC remains 100 percent owned by the Aponte family. "We would never go public," Arena said. "Going public means you lose control of your own destiny."

So MSC will remain in the hands of the Aponte family, which is already planning for succession. "The most important decision we can make is to ensure the orderly transition to new leadership," Arena said. "We have groomed a good core of managers to take over."

Aponte, who is 63, has two children, Diego, 29, who is vice president in charge of container lines, and Alexa, 32, who runs MSC's cruise lines. "They are already assisting their father in running the business, but Capt. Aponte makes all the important decisions," Arena said.

Arena also is 63. "I'll be involved here for a few more years and I'll continue to work with Capt. Aponte," he said.

Arena owns a small vineyard in Chile and has named the wine it produces after his daughter, Sabrina, who in turn is named after Audrey Hepburn's character in the movie "Sabrina." He doesn't plan to retire to the vineyard, but "I will spend a couple of months a year there."

Nor does he plan to move back to Italy, although his family comes from Central Sicily, and he grew up in Genoa. That's because Arena is now, after all, a New Yorker. "I love living in New York and love the energy and the activity, though you have to learn to be selective and pace yourself."