Packing more buzz than usual: Sea-Land sale

Packing more buzz than usual: Sea-Land sale
rumor returns

The annual dinner of the New York Foreign Freight Forwarders and
Brokers Association was awash with talk. But alas, at this point, the
rumor remains, only a rumor.

BY PETER TIRSCHWELL
JOURNAL OF COMMERCE STAFF

NEW YORK -- It's the rumor that never dies: Sea-Land Service Inc., the
oldest company in the container shipping industry, will be sold.

The rumor lays low for months or years, then perks up for a time before
fading again.

Twice it has been true, first when Malcom McLean, who founded Sea-Land
in 1956, sold his interest to the
tobacco company R.J. Reynolds Inc.
And then in 1986, when Reynolds sold
Sea-Land to CSX, which owns it now.

The most persistent rumor over the
past few years has been that CSX,
displeased with Sea-Land's
performance and in need of cash,
would sell the business to the Danish
shipping conglomerate A.P. Moller,
whose Maersk Line has been
Sea-Land's global vessel-sharing and
terminal partner since 1992.

That rumor, like others before it, has
had its ups and downs. But if the Sea-Land rumor comes and goes in waves,
right now it is a storm surge.

There is nothing to substantiate the rumors, and both Sea-Land
and Maersk say they never comment on
rumors.

But that has not stopped phones around the world from ringing off the hook
over the past few weeks as people ask each other, "What have you heard?"

The huge annual dinner of the New York Foreign Freight Forwarders and
Brokers Association on Wednesday was buzzing with talk of a spectacular
deal in the works.

"We got a few calls last weekend," said William J. Coffey, vice president of
R.J. Johns & Associates Inc., a maritime consulting firm in New York. Two
reasons stand out for why the Sea-Land/Maersk rumor mill is cranking.

First, Maersk McKinney Moller, the 85-year-old chairman of A.P. Moller,
paid a rare visit to the United States last week visiting Maersk terminals,
Sea-Land confirmed.

Various sources placed Mr. Moller in Charlotte, N.C., where Sea-Land is
based, and in Washington, where he is said to have met with officials from the
Transportation Department. Further reports have placed CSX executives in
Copenhagen on several occasions over the past few months.

The government factor

The prospect of a government meeting would immediately spur the rumor mill
because 15 of Sea-Land's ships are subsidized under the Maritime Security
Program.

To continue to receive those funds if Maersk were to acquire Sea-Land, the
vessels may have to be operated by a U.S.-owned ship management firm,
similar to the arrangement APL Ltd. created to continue receiving subsidies
after it was acquired by Neptune Orient Lines of Singapore in late 1997.
Structuring something like that under a Maersk/Sea-Land combination would
require approval of the Maritime Administrator.

The second factor spurring the rumor mill is what many say is the plausibility
of a Sea-Land/Maersk combination.

P&O Containers and Nedlloyd, which became P&O Nedlloyd, and
APL/NOL redefined notions of what is possible by way of container shipping
mergers. APL in particular showed that the government would allow the sale
of a major U.S.-flag carrier.

The rate factor

Driving those mergers and several smaller deals is an unforgiving rate
environment that has forced carriers to seek cost savings and higher
profitability through consolidation. Few expect this trend to let up.

Maersk, which operates several U.S.-flag ships for the Military Sealift
Command, would not be considered a risky buyer for Sea-Land, experts
say.

"Of all the companies to acquire Sea-Land, they (Maersk) would probably
get the most welcome treatment from the powers that be in Washington," Mr.
Coffey said.

The plausibility of a deal goes well beyond that. John W. Snow, chairman of
CSX, has made it clear in recent years that Sea-Land is for sale at the right
price. Sea-Land is not nearly as profitable as CSX demands, and the unit
could be sold off with little disruption to CSX's rail and intermodal network.

CSX's fourth-quarter earnings, released last week, illustrate why CSX
regards Sea-Land as a financial downer.

Over and over

Fourth-quarter operating income at Sea-Land declined 79%, compared with
the 1997 fourth quarter, to $16 million, and revenue fell nearly 4%. Other
CSX units saw profit decline, but none by as much as Sea-Land's.

A Sea-Land executive admitted rumors have plagued the company for years.

"There have been rumors about Sea-Land and Maersk for years, since we
first concluded our VSA (in 1992)," said Chuck Raymond, senior vice
president and chief transportation officer at Sea-Land, referring to the two
companies' Vessel Sharing Agreement.

"Because we are doing so many things together around the world, and in a
very public way -- most recently combining our Europe-Mediterranean
services, the RFP (request for proposals) for the deep-water port on the East
Coast, and meeting together with the port authorities of Los Angeles and
Long Beach, here is a fertile ground for rumors to be propagated," he said.

"These continue to be somewhat disruptive and it is regrettable that they
persist," Mr. Raymond said.

As to the rumors themselves, he said, "As a policy, we never comment on
these rumors."

Tom Boyd, a spokesman for Maersk, said, "We don't comment on rumors."