LYKES MAKES PLANS TO SURVIVE IN FREE-MARKET ATMOSPHERE

LYKES MAKES PLANS TO SURVIVE IN FREE-MARKET ATMOSPHERE

Lykes Bros. Steamship Co. sees clearly the day when it no longer will be given government subsidies to maintain a U.S.-flag fleet, and is taking dramatic steps to ensure that it will survive in a free-market environment.

Without U.S. government subsidies, which provide Lykes with over $60 million each year but are due to expire in 1997, it will be almost impossible for the third-largest U.S. ocean carrier to keep its fleet operating under the U.S. flag given its current cost structure.But without its fleet operating under U.S. registry, Lykes stands to lose up to 30 percent of its business. That portion of its cargo is generated by the U.S. military and by federal foreign aid programs and must move on U.S.-registered ships under current cargo preference laws.

Lykes, therefore, sees its future in the commercial, free-market end of its business, senior executives said this week in an interview with The Journal of Commerce.

"Our new structure reflects that commercial customers are critical to our success," said Thompson Lykes Rankin, Lykes' chairman and chief executive.

"While we have, and will continue to serve the government-impelled market, the needs and expectations of the commercial customer are different."

Subsidy proposals currently being tossed around in Washington would provide

funds for maybe four of the company's 24 U.S.-flag ships to continue operating under U.S. registry, giving the company access to a fraction of the U.S. government cargo it currently carries.

Mr. Rankin and Eugene McCormick, Lykes' president, said the restructuring, or "re-engineering" as Lykes calls it, is intended to prepare Lykes to be completely independent of government assistance when subsidies expire in 1997.

"Five years from now if there is an acceptable subsidy program we will go with it. If not, we will go without it," Mr. McCormick said.

Lykes' restructuring already has created a considerably smaller company. Also, a new senior management has been installed and the company was reorganized to create a "customer-focused, market-driven structure."

Over the last month, 227, or over 30 percent, of Lykes' 750 employees left the company under an early retirement and voluntary separation program initiated by Mr. Rankin shortly after he arrived at Lykes in July, The Journal of Commerce reported this week.

The remaining employees, Lykes announced Wednesday, will be organized into three divisions: customer acquisition and service, operations and administration.

The divisions will report to Mr. Rankin, who was head of all the Lykes family businesses out of Tampa, Fla., before stepping in to head the steamship line in July.

The Lykes family's holdings, whose roots go back to 1858 when Howell Tyson Lykes began selling cattle to Cuba, include natural gas, meat-packing, orange juice processing, livestock, trucking and banking. The shipping arm was established in the late 1800s to shuttle cattle back and forth to Cuba.

The arrival of Mr. Rankin as successor to W.J. "Jim" Amoss stirred considerable speculation in the shipping industry as to what the family's ultimate plans are for the shipping company.

Mr. Rankin's efforts to cut staff and reorganize the company are seen as a response to short-term problems brought on by the recession, which is affecting the entire shipping industry, as well as by longer-term considerations related to subsidies and government cargo.

As a private company, Lykes will not discuss its financial performance, but it is reported to be losing money on annual revenues of about $600 million and, according to credit reports, often is slow in paying its bills.

Lykes' transition "from the traditional steamship company organization to a customer-focused, market-driven structure," as Mr. McCormick characterized it, represents a major about-face for a company with a reputation for inconsistent customer service.

But it is still no guarantee of survival, given that the company soon must face the daunting task of rebuilding its aging fleet, maritime industry sources said this week.

"They have waited so long to rebuild that I don't see it happening," one former Lykes employee said.

In the post-subsidy era, Lykes wants to keep some U.S.-government business, saying that when its aging U.S.-flag fleet becomes obsolete, as it will over the next few years, some of the ships built or chartered as replacements will be registered in the United States and deployed on routes heavily laden with U.S. government cargoes.

Mr. Rankin said Lykes will not reflag any of its aging fleet of 23 U.S.-flag ships, but will replace those ships with U.S.- or foreign-registered vessels depending on the availability of government cargo.

But as Mr. Rankin said this week, the only way Lykes can maintain any U.S.-flag presence at all is if maritime labor unions agree to significantly lower compensation levels, which is far from certain.