The end of P&O

fred henderson
13th March 2006, 18:31
Dubai World Ports will pay the agreed £3.9 billion price to the shareholders of P&O on 16 March and the company’s independent existence will be over after at least 168 years of operations. The crazy American political fuss was never more than an irritating side show. The US terminals only generate about 6% of P&O Ports profits. I have been wondering how P&O came to be in this situation and I decided to set down my thoughts. I am sure some members will have very different views.
It appears to me that for the first 120 years or so, P&O was a powerful and successful shipping company that knew exactly what it was doing. It dominated passenger and cargo liner services from Britain to India, Australia, New Zealand, between those countries and around the Indian Ocean. It was also a major operator to the Far East and elsewhere. P&O may have had a few fringe subsidiaries, like its ship repair yards and General Steam Nav, but essentially it was a liner shipping company.
After WW2 P&O seemed to gradually change and become increasingly defensive. It was as though the thought of being more than a hundred years old made the company more concerned to protect its continuing existence. This was probably the reason behind its very wide ranging diversification away from its traditional business. In the end P&O had its finger in a very large number of pies, but nowhere did it control the dish.
Investors became confused by a shipping company that was building houses in UK, operating ports in India, managing the Earls Court exhibition centre in London, operating luxury resorts in Australia and Spain, was into oil exploration, travel lodges in Alaska and many other diverse activities. The shares became increasingly unpopular and lagged behind the market until P&O was in a very dangerous financial situation.
The total individual value of the great collection of companies owned by P&O became significantly greater than the market value of P&O itself. This created an ideal situation for someone to buy P&O, then to sell off each of the subsidiary companies and make a handsome profit. In 1983 Trafalgar House made a bid for P&O. Trafalgar House had already bought Cunard and was later to almost destroy that company. Thankfully a young, new P&O director called Jeffrey Sterling organised a spirited defence of the company and the raid was repulsed.
Sterling was appointed as Chairman of P&O and led the company until last year. Unfortunately he intensified the diversification process, until in the mid 1990s there was a near mutiny by the major shareholders. They made it clear to the by then Lord Sterling that if he and the other directors wanted to keep their jobs, P&O must become focussed in one or two sectors and the rest of the operations sold off.
Sterling reluctantly complied with these demands. Sadly P&O was in so many activities that for years available capital investment was rationed between them and their growth was stunted. Many of the subsidiaries were too small to become stand alone companies and they could only be the subject of a trade sale within their industry. Even the very large P&O companies had been left behind by their rivals.
P&O cruise shipping illustrates the situation rather well. In 1970 the P&O and Italia passenger fleets were the largest in the world. They were about the same size, both having 15 passenger ships. Italia’s passenger shipping operations collapsed a few years later when the Italian government subsidy was withdrawn. In 2000 when P&O Princess Cruises was floated off as a new quoted company its position had fallen to be only the third largest cruise group in the world with 17 cruise ships. Despite that, the market value of the new cruise company was about 150% of the value of all of the remainder of P&O. Carnival, which did not exist in 1970, was in first position in passenger fleet size and Royal Caribbean, which only took delivery of its first ship in 1970, was in second place. P&O missed out, big time in the 1970s and 1980s and never caught up.
Within a few years of the cruise and container businesses being separated, they were snapped up by more powerful operators. As soon as P&O had disposed of its major shipping and other operations to concentrate on ports, it has itself been taken over. I feel this situation underlines the fatal weakness of the Sterling diversification strategy.
Lord Sterling should however, be given full credit for keeping the business going. So many British ship owners simply gave up after 1970.
It is easy to apply the 20/20 vision of hindsight, but the failure of P&O to exploit its passenger business was folly. It seems to have had an occasional interest in the sector after the early 1960s. It bought Princess and Sitmar and a couple of second hand ships, but largely ignored the business for years. After taking delivery of Canberra in 1961 the next passenger ship to be designed and built for P&O was Royal Princess in 1984 and then nothing more until Oriana in 1995. From the mid 1980s Carnival and RCCI were each building one or two new ships per year.
When P&O Princess was created in 2000 the existing shareholders in P&O received all the shares in the new company. When the new company was taken over by Carnival it was through a unique double listing structure whereby the P&O Princess shareholders had 28% of the combined entity, but their shares remained quoted separately on the London exchange. Their shares in Carnival are worth £6.5 billion today. Carnival as a whole has a market value of about £23 billion. Carnival still keeps the P&O name alive with its UK and Australian subsidiaries.
The price DWP is paying this week is about twice the value of P&O a year ago. The P&O shareholders have also obtained a massive increase in value by becoming shareholders in Carnival. Good work, but not perfect. If however, P&O had concentrated on only cruise ships and container terminals in the 1970s and had steered clear of the other clutter it would be a huge and thriving business today.
I hope that this is not too long-winded, but I felt that something should be said on this momentous occasion for British merchant shipping.

Fred

benjidog
13th March 2006, 18:54
Thank you for a perceptive analysis Fred.

I have never understood companies diversifying widely from what they are good at. Little good seems to come from it and sooner or later the non-core businesses either get sold off or go to the wall. If they start to gobble up the resources of the core business they can all too easily take that down as well.

Brian

John Rogers
13th March 2006, 19:41
I think a little diversifying is good but too many is hard to manage. Greed did them in instead of keeping their eye on the ball,Bankers instead of good managers.
John

Pompeyfan
14th March 2006, 23:12
Fred has given a good account of the demise of P&O. I am not sure they ignored the business. Many British ship owners certainly gave up after 1970, but that was due to the airliner taking the passengers. Whe Canberra was built, ships were still carrying passengers to far away places like Australia. Not only P&O, but many other companies. Passenger line voyages were still big trade and of course P&O took over their main rival Orient Lines. Both were offering higher quality service than other companies. When Canberra made her final line voyage in 1972, her future was bleak. It was obvious even then that cruising was the in thing, and the only way for companies to make money. This is why we did a lot of cruises in between line voyages. Ships were no longer used to transport passengers from A to B, and P&O was indeed slow to pick up on this. But they did try which is why we tried to make up for loss of passengers cruising between a voyage. When Canberra went cruising full time, she had a bad start, but we on Arcadia were doing very well converting to a full time cruise ship. But they were old, and other companies had more vision. Had P&O built purpose build cruise ships a bit earlier, they may have done better. They did try of course, Fred did not mention Spirit of London built for P&O in 1971, a purpose built cruise ship. She was never employed on a line voyage, and of course they bought Island Princess and Pacific Princess in the early 70s, so they were more than aware of the change from line voyages to cruising. But was it enough. Hindsight tells us that it was not. Or was it due to a totally new form of trade that I have banged on about for years that some had better insight over than others?!. But whether they lacked hindsight or not, cruising today is just as big business as line voyages before the arrival of the airliner. When Canberra ceased to be a liner in 1972, most of us on board thought the future looked pretty bleak. But other clearly did not which is why P&O are now gone. By the way, if memory serves me right Fred, was Bovis the building company P&O was invloved with in the 70s. The name rings a bell?. David

Frank P
15th March 2006, 00:18
Hello David,
I beleive that the "Spirit of London" was ordered by a Norwegian company (Klosters, maybe) and then the Norwegian company had financial problems, so P&O took over the build when the ship was half finished. Something like that.

Frank

fred henderson
15th March 2006, 00:24
David
I was hoping that you would make a comment. I am sure that it is true that the P&O passenger ship operation tried hard for success, but I think they were not consistently supported by the Board.
The fleet figures tell the story, they are as follows: -

1970
P&O: 15 Ships, 340,007 grt, 17,649 berths
Carnival: Nil
RCCI: 1 Ship, 18,416 grt, 724 berths

1980
P&O: 7 Ships, 188,479 grt, 8,684 berths
Carnival: 4 Ships, 86,764 grt, 5,391 berths
RCCI: 3 Ships, 65,586 grt, 1,611 berths

1990
P&O: 11 Ships, 389,342 grt, 13,657 berths
Carnival: 12 Ships, 458,086 grt, 19,226 berths
RCCI: 7 Ships, 264,235 grt, 11,505 berths

2000
P&O: 16 Ships, 957,839 grt, 23,966 berths
Carnival: 35 Ships, 2,094,097 grt, 55,991 berths
RCCI: 19 Ships, 1,433,688 grt, 38,228 berths

Turning to the specific points you make:-

Spirit of London was an oddity. She was building for Norwegian Cruise Line but the Italian yard could meet the contract price. The contract was cancelled and P&O stepped in and paid to finish the ship. She was a flop in the American market. Middle America did not know P&O from B&Q. When Princess were bought she was transferred and became Sun Princess and was a success.

Yes, Bovis were a part of P&O.

Fred(Thumb)

Keltic Star
15th March 2006, 08:39
When Carnival came on the U.S. cruise scene, they made cruising affordable to all with very intensive marketing campaigns and low fares. If I recall correctly, P&O continued to target the traditional higher end of the market but even that was picked up by Carnival by introducing ships with far more sumptious suites. P&O, like several other British corporations entering the U.S. market did not do their homework properly. Their market studies were lacking depth and they didn't understand that advertising in the U.S. is a completely different ball game than that in the U.K. The market is drawn from all the States, including the mid west farm belt, not just affluent eastern seaboard cities.

Carnival and RCC snapped up this vast pot of gold by doing a deal with Delta, AA and Eastern to introduce the fly/cruise concept, building discounted air seats into the price. Latecomers into this form of package had to rely on a limited availability of air seats.

In my cruise ship day's, the biggest mistake I ever made was recommending one of Britains largest tour companies as our General Sales agent for North America. Like the use of pilots, I should have gone with local knowledge. But that's another story.

Pompeyfan
15th March 2006, 17:30
You are right about Spirit of London Fred. She was not successful under her old name. That was around the time Canberra was finding it difficult transferring from line voyages to cruising. The American's did not know us, and that was a problem. We on Arcadia were doing well, and on the American market from June 1973 when I joined her until we went down to Australia in October 1974. P&O did massive advertising on the west coast and it worked to an extent. I don't think there is one single reason why other companies were so successful. Crew has not been mentioned yet which was a major factor. I think you will find that in the 70s at least, my era, P&Os wages were far higher than other companies with a far larger European crew. European meaning white crew usually British. I am talking about stewards like Wingers(waiters), BRS, PRS, Barmen, and so on including Accommodation Stewards, Writers, Printers, Slop Shop etc etc. You name it, British crew did it. These jobs even in the 70s were done by other nationalities on other ships, Carnival included I assume at a fraction of the wages paid to British crew. Goanese for example working as stewards on P&O ships in tourist accommodation were getting nothing like the pay of British stewards, yet they were doing the same jobs. In fact on the Orient ships even when owned by P&O British crew were doing what Goanese was doing on P&O ships. P&O may have had the most ships, but they had the biggest wage bill. Companies starting out at that time were bascially starting with a clean sheet and new crew. That had nothing to compare or crew to axe to balance the books. So that alone meant they had a head start on an established company who suddenly found they had ships with crew wages they could not afford without pricing themselves out of the market. As Keltic Star said, Carnival made cruising affordable. P&O could not do this with such high wages bills. And when axing crew, you have unions to deal with. All this has to be taken into account. I really don't think there is an easy answer as to why P&O failed. They would have sorted their wage bills out now I suppose to run at a profit. But at what overall cost, and indeed at what cost to the British seafarer?. David

Paedrig
15th March 2006, 17:54
I seem to recall that around 1970 we had Cooper Brothers aboard Oriana, for a trip, doing what they described as "work evaluation". The galley press had it that Head Office were looking to reduce manning levels however nothing came of it as far as I know.

Frank P
15th March 2006, 18:10
Hello David,
You are right about the cost of European salaries. On the Royal Viking Line ships in the 70's we had Norwegian contracts, at that time Norwegian wages were alot more than British wages, but I think that we had less crew than the equivelant size British ships. I think that is the reason that some companies changed flags, so that they could use the cheaper crews.

Frank

Jeff Egan
15th March 2006, 18:20
I'm not sure P&O did fail after all they out lasted many other great shipping companies and were sold off at a premium, nothing lasts for ever and their time had come, it's as simple as that.

bob johnston
16th March 2006, 22:26
Dubai World Ports will pay the agreed £3.9 billion price to the shareholders of P&O on 16 March and the company’s independent existence will be over after at least 168 years of operations. The crazy American political fuss was never more than an irritating side show. The US terminals only generate about 6% of P&O Ports profits. I have been wondering how P&O came to be in this situation and I decided to set down my thoughts. I am sure some members will have very different views.
It appears to me that for the first 120 years or so, P&O was a powerful and successful shipping company that knew exactly what it was doing. It dominated passenger and cargo liner services from Britain to India, Australia, New Zealand, between those countries and around the Indian Ocean. It was also a major operator to the Far East and elsewhere. P&O may have had a few fringe subsidiaries, like its ship repair yards and General Steam Nav, but essentially it was a liner shipping company.
After WW2 P&O seemed to gradually change and become increasingly defensive. It was as though the thought of being more than a hundred years old made the company more concerned to protect its continuing existence. This was probably the reason behind its very wide ranging diversification away from its traditional business. In the end P&O had its finger in a very large number of pies, but nowhere did it control the dish.
Investors became confused by a shipping company that was building houses in UK, operating ports in India, managing the Earls Court exhibition centre in London, operating luxury resorts in Australia and Spain, was into oil exploration, travel lodges in Alaska and many other diverse activities. The shares became increasingly unpopular and lagged behind the market until P&O was in a very dangerous financial situation.
The total individual value of the great collection of companies owned by P&O became significantly greater than the market value of P&O itself. This created an ideal situation for someone to buy P&O, then to sell off each of the subsidiary companies and make a handsome profit. In 1983 Trafalgar House made a bid for P&O. Trafalgar House had already bought Cunard and was later to almost destroy that company. Thankfully a young, new P&O director called Jeffrey Sterling organised a spirited defence of the company and the raid was repulsed.
Sterling was appointed as Chairman of P&O and led the company until last year. Unfortunately he intensified the diversification process, until in the mid 1990s there was a near mutiny by the major shareholders. They made it clear to the by then Lord Sterling that if he and the other directors wanted to keep their jobs, P&O must become focussed in one or two sectors and the rest of the operations sold off.
Sterling reluctantly complied with these demands. Sadly P&O was in so many activities that for years available capital investment was rationed between them and their growth was stunted. Many of the subsidiaries were too small to become stand alone companies and they could only be the subject of a trade sale within their industry. Even the very large P&O companies had been left behind by their rivals.
P&O cruise shipping illustrates the situation rather well. In 1970 the P&O and Italia passenger fleets were the largest in the world. They were about the same size, both having 15 passenger ships. Italia’s passenger shipping operations collapsed a few years later when the Italian government subsidy was withdrawn. In 2000 when P&O Princess Cruises was floated off as a new quoted company its position had fallen to be only the third largest cruise group in the world with 17 cruise ships. Despite that, the market value of the new cruise company was about 150% of the value of all of the remainder of P&O. Carnival, which did not exist in 1970, was in first position in passenger fleet size and Royal Caribbean, which only took delivery of its first ship in 1970, was in second place. P&O missed out, big time in the 1970s and 1980s and never caught up.
Within a few years of the cruise and container businesses being separated, they were snapped up by more powerful operators. As soon as P&O had disposed of its major shipping and other operations to concentrate on ports, it has itself been taken over. I feel this situation underlines the fatal weakness of the Sterling diversification strategy.
Lord Sterling should however, be given full credit for keeping the business going. So many British ship owners simply gave up after 1970.
It is easy to apply the 20/20 vision of hindsight, but the failure of P&O to exploit its passenger business was folly. It seems to have had an occasional interest in the sector after the early 1960s. It bought Princess and Sitmar and a couple of second hand ships, but largely ignored the business for years. After taking delivery of Canberra in 1961 the next passenger ship to be designed and built for P&O was Royal Princess in 1984 and then nothing more until Oriana in 1995. From the mid 1980s Carnival and RCCI were each building one or two new ships per year.
When P&O Princess was created in 2000 the existing shareholders in P&O received all the shares in the new company. When the new company was taken over by Carnival it was through a unique double listing structure whereby the P&O Princess shareholders had 28% of the combined entity, but their shares remained quoted separately on the London exchange. Their shares in Carnival are worth £6.5 billion today. Carnival as a whole has a market value of about £23 billion. Carnival still keeps the P&O name alive with its UK and Australian subsidiaries.
The price DWP is paying this week is about twice the value of P&O a year ago. The P&O shareholders have also obtained a massive increase in value by becoming shareholders in Carnival. Good work, but not perfect. If however, P&O had concentrated on only cruise ships and container terminals in the 1970s and had steered clear of the other clutter it would be a huge and thriving business today.
I hope that this is not too long-winded, but I felt that something should be said on this momentous occasion for British merchant shipping.

Fred



Great information Fred you certainly have done your homework it is sad to see a company in this position by their earlier business plans which have come back to haunt them. Certainly not long -winded but a good job and well written.

Bob ( Sydney )

KIWI
17th March 2006, 00:01
I have been very interested in learning more of P&O's sell out & the foregoing has been of great intrest.Thanks very much. KIWI

Keltic Star
18th March 2006, 07:04
After the clusterf--k of the DWP situation, the U.S. administration is now proposing criminal and security checks on all employees at U.S. Ports. There goes 80% of the workforce.

Michael Broughton
24th March 2006, 16:37
I think Fred Henderson's analysis was generally correct. Lord Sterling came from a property background and did well with the hand he had to play. The city certainly never appreciated the conglomerate approach. Shortly before the Princess de-merger the shares were yielding over 7%, which grossly undervalued the company. Those shareholders who hung on to the end have done pretty well and Carnival Plc is still quoted in London, with a far higher rating than P&O on its own ever achieved. It is still a great shame that yet another major British asset is in foreign hands,
As a footnote, today I received P&O Cruises 2007 advance brochure and guess what, the flag logo has gone, replaced by a rising sun which looks more like a stylised sea urchin than a rising sun.

bob johnston
25th April 2006, 12:29
I think Fred Henderson's analysis was generally correct. Lord Sterling came from a property background and did well with the hand he had to play. The city certainly never appreciated the conglomerate approach. Shortly before the Princess de-merger the shares were yielding over 7%, which grossly undervalued the company. Those shareholders who hung on to the end have done pretty well and Carnival Plc is still quoted in London, with a far higher rating than P&O on its own ever achieved. It is still a great shame that yet another major British asset is in foreign hands,
As a footnote, today I received P&O Cruises 2007 advance brochure and guess what, the flag logo has gone, replaced by a rising sun which looks more like a stylised sea urchin than a rising sun.


It is a shame to see that the logo has been changed as it was an important trade mark. Does anyone know if the P&0 wavelength has now finished as I used to enjoy reading what was happening .If it has finished what month did it finish ?

Bob (Sydney )

Baltic Wal
25th April 2006, 13:30
It is a shame to see that the logo has been changed as it was an important trade mark. Does anyone know if the P&0 wavelength has now finished as I used to enjoy reading what was happening .If it has finished what month did it finish ?

Bob (Sydney )

Bob, the word is trademark, the name is used but has not been part of P&O since the sell out, therefore had to go at some stage, the name will be next. Like Rolls Royce, the name and lady were trade marks, the name was used by different organisations but the Lady stayed with the cars.

Doxfordman
27th April 2006, 00:13
The old P & O cap badge was a rising sun - was it not???

Paedrig
27th April 2006, 08:52
The old P & O cap badge was a rising sun - was it not???
Short answer...Yes. Always looked as if it was unfinished, in my opinion.