Royal Mail Steam Packet Company Kylsant Empire Part 4

Donald E. Meek
10th December 2009, 16:55
Discussion thread for Royal Mail Steam Packet Company Kylsant Empire Part 4 ( Mail Steam Packet Company Kylsant Empire Part 4). If you would like to add a comment, click the New Reply button

27th December 2009, 16:29
Donald, the Kylsant story is indeed a fascinating one. Even during my apprenticeship with Andrew Weir's between 1952-56 part of the story was passed to me by someone on a ship who knew enough about it for me not to forget the name and the background to what transpired. But then, some of the main named companies still existed.
My recollection is that the old Lord Inverforth was still active within the company over the age of 90 when I went to sea with Bank Line on my first trip.

Andrew Craig-Bennett
2nd March 2010, 00:58
Stunningly good series of articles. Kylsant was the Awful Example in the management of British shipping companies as recently as the Eighties. I had read the Harland and Wolff company history which touches on this but your account of the financial complexities is clearer. Bravo!

fred henderson
2nd March 2010, 13:30
Actually I wrote the articles Andrew, but thank you for the comments.(K)

It is one of the quirks of the system that if anyone clicks the Discussion tab at the start of an article, it fires up a new Thread in their name. Absolutely no fault on Donald's part.

Andrew Craig-Bennett
2nd March 2010, 13:53
Actually I wrote the articles Andrew, but thank you for the comments.(K)

It is one of the quirks of the system that if anyone clicks the Discussion tab at the start of an article, it fires up a new Thread in their name. Absolutely no fault on Donald's part.

Fred, I was trying to address you, but the system got to windward of me.

An absolutely first class account.

I read in the company history of H&W that Kylsant was partly motivated by his faith, the suggestion being that he did not, as a sincere Christian, want to lay men off.

I would like to offer a suggestion for discussion.

I suggest that the effects of Kylsant's crash were long lasting, right down to the end of British commercial shipowning. British shipping companies became positively priggish about their financial and accounting policies. A sample remark, which was actually made to me, was, "You can tell a lot about someone by how they account for their dry dockings - decent people always accrue them!"

Nobody else in British shipping tried to do a Kylsant.

Mergers and takeovers were almost a forbidden subject - you might as well have talked about sex or religion at the Board table.

Companies financed ships out of retained earnings, and were notably reluctant to borrow.

The result was a shoal of elderly tiddlers; old, respectable companies but still, in the scheme of things, tiddlers, none of whom could undertake the containerisation of a trade on their own and all of whom were terrified of the cost of containerising - hence the blind alley of palletisation, playing with ro-ro's, and so on - and none of whom would merge.

These very conservative accounting policies made them easy targets for the tax man, who helped himself very liberally.

The shipbuilders were always different - they were, by the standards of the owners, downright louche! Shipping companies grew allergic to the idea of owning shipyards, even when they saw the brilliant sucess of the SD14 as a result of the LOFs/A&P tie up. So the two halves of the industry never really talked to each other.

And along came the Grim Reaper, aka Sir Geoffrey Howe...

Just a thought...

fred henderson
2nd March 2010, 20:12
You raise some very profound questions Andrew. They are worthy of a reply as long as a Directory Article, but if I will attempt to give my views in a simple way. It is a very complex subject and the following is inevitably rather superficial.

1. As I wrote in Part 1 of the Directory article, I was drawn to the Kylsant saga because the way he financed his empire building and its subsequent collapse are so like the operation of many companies (and governments) today. He is also one of only two Peers to be imprisoned for fraud – the other is the newspaper tycoon Lord Black, currently residing in a US prison.

2. More than ever shipping is an international business. There are many British registered companies with foreign owners – Greek families for example – although their ships are often not British flagged. There are also many examples of traditional British shipowners who have placed their ships on foreign registries.

3. I hold the somewhat controversial view that P&O made a complete Horlicks of its corporate strategy for decades, ignoring its passenger shipping (at one time the largest in the world) and wasting countless millions in diversification efforts. Cunard was even worse. As a result the passenger business of both giants has been acquired by little upstart Carnival, which was formed in 1972 with a capital of only $6.5 million. See my:

4. Carnival is now the largest passenger shipping business that has ever existed, carrying 8,519,000 passengers in 2009. Carnival Corporation is incorporated in Panama, and Carnival plc is incorporated in England and Wales. Carnival Corporation and Carnival plc operate a dual listed company, whereby the businesses of Carnival Corporation and Carnival plc are combined through a number of contracts and through provisions in Carnival Corporation’s Articles of Incorporation and By-Laws and Carnival plc’s Articles of Association. Carnival Corporation and Carnival plc are both public companies, with separate stock exchange listings and their own shareholders. The two companies operate as if they are a single economic enterprise, with a single executive management team and identical Boards of Directors, but each has retained its separate legal identity. The British element – Carnival plc - made a profit of $1.067 billion after tax, on a turnover of $6.55 billion in 2008. It is probably the most successful UK shipping company that has ever existed. It had an average of 30,216 employees in 2008, of which 22,132 were seagoing.

5. At the end of 2008, Carnival plc had assets of $11.813 billion, which is partly financed by borrowings of $6.496 billion. Carnival’s borrowing ratio is significantly lower than its rivals Royal Caribbean and NCL.

6. Carnival plc’s accounts state:

“Dry-dock costs primarily represent planned major maintenance activities that are incurred when a ship is taken out of service for scheduled maintenance. These costs are immediately written off to expense. Capital ship expenditures incurred during a dry-dock or at another time are capitalised as ship improvements on a component basis and depreciated over their estimated useful lives, with the estimated net book value of assets being replaced written off upon replacement”.

7. During a career in shipbuilding commercial negotiation I have found that the vast majority of new ships have been financed on the basis of 20% owner’s payment and an 80% government backed loan repayable over 8 years from delivery of the ship.

8. At the end of the 1960s/early 1970s the world’s shipowners were faced three huge challenges:

a. Containerisation
b. OPEC price increases that led to a dramatic increase in bunker fuel costs and a collapse of the tanker charter market
c. The introduction of the Boeing 707 resulting in the destruction of passenger liner business

9. As a result the above, many smaller shipowning companies felt that the game was no longer worth the candle. They could sell-up and invest the proceeds on the stock-exchange and earn far more, at much less risk. Quite logically this is the course they followed. Other larger companies entered into the joint-venture container companies, OCL, ACL, ACT, etc. Many of these investments were subsequently bought out by P&O, before it finally merged its container business with Nedlloyd in 1996, which was acquired by Maersk in 2005.

10. Shipbuilding in Britain was destroyed by its nationalisation. The then Labour Government’s sole interest was to preserve as many jobs as possible in Labour held Constituencies. British Shipbuilders brought together shipyards that were desperate to be rescued (mainly on the Clyde and the Mersey) with others that could have survived and the profitable warshipbuilders. The strong yards were bled dry to keep the basket cases alive. From the end of WW2 to nationalisation, Britain supplied more than 50% of the export market for new-built major warships. Not a single major warship export contract was obtained during the existence of British Shipbuiders – they were not interested. The plan was to concentrate on simple commercial vessels, as they employed more shipbuilding labour. Warships, passenger ships and any other vessels that would have large sub-contractor involvement were not welcome. Of course this placed British Shipbuilders in direct competition with the brand new shipyards in Japan, South Korea and China; of course the losses rocketed; of course they eventually were unable to sell ships at any price; of course the next Conservative Government closed the entire shambles down, with a handful of yards surviving.

Further food for thought?

Andrew Craig-Bennett
5th March 2010, 05:15
A very cogent response; these are just jottings:

Jim Davis, of the IMIF, who is very much still with us, was a Director of the P+O who left over tha gas ship debacle and he would agree with you; he points out that when he joined the company it owned a ship for every day of the year and no two were the same!

Ocean were also guilty of "headless chicken" diversification.

Accruing for dockings is now in effect prohibited by the tax man so the options are to expense them as Carnival prudently do or to capitalise them.

The title of "largest shipowner in the world by capital and turnover" in recent years has been between Carnival and Maersk. NYK have the most deadweight and Cosco the most ships.

Many shipowners, even including Maersk, tried to get into the airline business; the only shipowners to suceed have been Swires and much more recently Hadji-Ioannou. This may have been because of the domination of the "national champion" airlines such as Imperial Airways/BOAC-BEA/BA and their equivalents in other countries. There has always been a political dimension to airlines, which shipowners were often uncomfortable with, and the entry premium is ghastly.

20% cash down and 80% over 8 years is of course the OECD rule for newbuilding ship finance, exemplified in the UK by the Ship Mortgage Finance Corporation ("SMFC"); you could only get better Government terms outside the OECD (which in practical terms meant only Taiwan). As a working rule, those owners who could afford not to take their chosen yard's offer of finance on OECD terms did better, with the SMFC being a notable exception. SMFC finance involved the buyer in taking a position on Sterling, of course. If you hedged the Sterling/Dollar position it looked less good.

One of the worst responses of the British companies to the challenges of the late Sixties and early Seventies was the formation of joint ventures - OCL, ACT, Panocean-Anco.

A point made to me by John Newton of OCL and Peter Roberts of Swires is that these companies were, in investment and management terms, the unwanted children of their parents' Boards, who starved them of investment and who came very close to competing with their own subsidiaries, whilst decision making, referred up to the parents, was the "corporate jelly" at its worst. Thus Panocean-Anco was outmanouvred by Stolt and OCL was outmanouvred by Maersk.

There was a general reluctance to understand that containerisation, with one box the same as the next, necessarily meant the end of the tariff in favour of FAK rates, hence the rise of the NVOCCs and the end of the Conferences.

Andrew Craig-Bennett
11th March 2010, 18:16
"HIGHLAND PRINCESS" had an eventful afterlife. She was eventually sold to Latsis, who named her MARIANNA and then sold her in lay up to what was then the Guangzhou branch of The People's Navigation Company of China, which eventually became COSCO, who remaned her GUANG HUA. She was acquired with the express purpose of evacuating Chinese people from Indonesia back to China. Presumably she retained the two four stroke double acting B&Ws that she was built with (!) Contrary to some wishful thinking she was scrapped long ago, but she certainly started something!