Nicolas Sartini: The turnaround man
CMA CGM veteran has led APL through a transition that has taken it from an ailing carrier to winner of the Lloyd’s List Awards Containership Operator of the Year
SINGAPORE-based APL was considered something of a basket case when, in 2015, French carrier CMA CGM announced it was to acquire its owner, Neptune Orient Lines.
APL had been losing money for years and shareholders, including Singapore's sovereign wealth fund Temasek, were growing impatient with its poor performance. The $2.4bn CMA CGM paid for the line was thought to be a good price for a carrier that really only had a strong presence in the transpacific trades.
Almost two years on, and 15 months since the acquisition was completed, APL has achieved an impressive turnaround, returning to profit and making a sizeable contribution to its new parent’s financial wellbeing.
Leading that turnaround has been industry veteran and long-time senior CMA CGM executive Nicolas Sartini, who was appointed chief executive of APL when the French line took ownership.
Despite being self-deprecating and quick to attribute any success to his employees, rather than himself, it is clear that the change in fortunes presided over by Mr Sartini have as much to do with his management, particularly given the parlous state of the industry over the time he has been in command.
Mr Sartini says that much of APL’s misfortune came from a lack of scale that afflicted a number of smaller carriers as the container shipping crisis bedded in.
“APL lacked a global scale,” he says during an interview at APL’s offices in Singapore. “It was difficult for a company of that size that was subscale to perform in the type of market we’re in. That was why APL had to be backed by a much larger group such as CMA CGM.”
Unlike other smaller companies that did weather the storm with less difficulty, APL was a “semi-global” carrier.
“If you look at the network, APL is everywhere except Africa and the east coast of South America, whereas others were more regional operators, mainly focused on intra-Asia trades.”
While those smaller lines could hunker down and concentrate on their core markets, APL was exposed to the major east-west trades.
“We are present on the transatlantic and Asia-Europe trades, and our key market is the transpacific,” Mr Sartini says. “Those markets, as we know, are tough. You can have good years, but there are also difficult years.”
As those difficult years wore on, it became apparent that the scale of the network was insufficient, so APL had to be part of a bigger carrier. Enter CMA CGM, ranked number three in the world.
Mr Sartini’s priority when he joined APL was to restore the profitability of the company.
“This was my clear agenda as well as ensuring business continuity,” he says. “When you change ownership you never know how customers are going to react.”
Another important factor is not knowing how the workforce will respond.
“The staff have been extremely supportive and happy to see that a new company was coming in to support the group and tell them that as long as it was profitable, they could develop the company again,” he says. “That was a change from the previous few years at APL where the key message had been that they had to shrink, reduce, cut and stem losses.”
CMA CGM came with the idea of developing APL again, and the message was received positively, Mr Sartini says.
“Without supportive staff you cannot do anything. One of the things I like about being in Singapore is that I like the people I am working with. We have a supportive staff that is working hard.”
And it is in keeping staff on board that Mr Sartini’s leadership paid dividends.
“We tried to give perspective,” he says. “We didn’t come empty-handed, we came with scale and a plan that had taken six months to prepare. We knew exactly what we wanted to do so we could say to the staff that we would go for a dual-branding approach and would maintain the APL brand and develop the brand again.”
This was a story employees wanted to hear, even though there was no cash injection into the business from CMA CGM.
“It got even better when we managed to get back to profitability,” Mr Sartini says. “When you have the beauty of getting results, then of course morale improves.”
Accentuate the positive
Mr Sartini points to three key elements in APL’s recovery.
The first of these was an improving market.
“We have seen the demise of Hanjin Shipping, which was probably when the market began to behave a bit more,” he says. “Then we had a good recovery in volume, and this year has seen supply and demand come in to better balance. We see volumes rising at 3%-4% and the truth is that on most trades we are enjoying greater volumes, which is a fundamental factor to sustain a recovery.”
While there is no doubt some truth in this, many other lines have failed to capitalise on the rising tide of market recovery alone.
That leads to the second factor in the recovery, which was being supported by a strong parent company that allowed both to pool equipment and vessels, and have more flexibility in the ships available.
“Being a larger group we have the ability to improve procurement and put together the volumes of both companies and go to vendors to renegotiate better terms, so there were cost synergies on terminal handling fees, ports, barges and intermodal costs,” Mr Sartini says. “Being part of a bigger group meant we could renegotiate on the basis of the combined volumes.”
It also meant that the two lines could integrate their networks of agencies, and bring together elements of the back office, generating savings on accounting services, port husbandry, human resources and finance. Areas that overlapped have been brought under the group back office.
“By mutualising, you can synergise,” Mr Sartini says.
But the demarcation line between CMA CGM and APL remains very clear.
“We are, as APL, an independent brand so we have our sales and customer service that are independent and are selling the APL brand and customer experiences,” Mr Sartini says. “We are also selling different products to CMA CGM, although we do have some joint products, but sales are totally independent. What we have done is put together elements of the back office.”
While some mergers and acquisitions lead to the death of a brand, that is not the CMA CGM way, Mr Sartini says.
“Over the years we have done 10 different acquisitions and we believe in the value of the brands,” he says. “As an example, ANL was acquired in 1995 and the company is still there as a strong brand on the Oceania market.”
There is little likelihood of this changing, as there are few more synergies to be made by merging the brands’ sales functions for example.
“Sales are a factor of the volumes you have,” Mr Sartini says. “When you have sales teams selling CMA CGM, APL or ANL, what matters is how many teu they produce. You would employ the same number of sales people whether you had the three separate brands of if you had them all together, because what matters is the volume generated per sales staff.”
There is also little overlap between the CMA CGM's customers and the APL client base. While there are some customers in common, APL mostly works with different shippers, and on that basis believes it makes sense to continue with its own brand.
“All the costs we can synergise, however, we will,” Mr Sartini says. “This was why the acquisition was made — to take advantage of as much cost saving as we could using the large scale.”
Eliminate the negative
The third element in APL’s recovery has been revenue.
“I don’t downplay the role of the market, but even with the improving market, at APL we have introduced more discipline on the revenue side,” Mr Sartini says.
This has meant trying to sell at freight rates that are as high as possible. CMA CGM has a quality contribution system so at the time of making a booking the sales staff can know the value of the business they are taking.
“In some cases you can carry some volumes that are totally unprofitable, so we have been able to eliminate a lot of unprofitable business that we had been carrying,” Mr Sartini says. “This is business you carry where the volume is really low and you end up spending a lot to deliver the service, through transhipment costs or by returning the empty equipment. Previously at APL, we were doing some business that was not profitable and that has been eliminated.”
APL has also risked shipper ire by introducing discipline into collecting demurrage.
“The consignee is using your equipment as a warehouse and in the past APL was a little bit lax about this so we are now being firmer on charging demurrage,” Mr Sartini says.
Achieving these results required customers to come along for the journey, despite removing less profitable customers, enforcing charges and avoiding price cuts.
“We have had a lot of dialogue with customers and have trained staff to deal with any issues,” Mr Sartini says. “Customers realise they are getting good customer service, and we pay a lot of attention to customer experience. Customers pay for and get a good service.”
On the transpacific trade, US customers consider APL as a premium brand.
Keeping the premium
Mr Sartini is realistic about the cyclical nature of container shipping.
“We know in this industry that there are good years and bad years,” he says. “The only thing we can do is make sure that we are always at the top of the market. We cannot stop the market falling, but we can ensure we have good tools to know what cargo makes sense to carry. We continue to be disciplined and selective in what we carry, but we have no way to prevent any other actor from lowering prices.”
In some cases, it is better to adjust capacity for a while when the market is bad and inject it again when it picks up. What matters more than load factors is the ability to react quickly, he says.
“What the CMA CGM group has been able to demonstrate is that we can outperform our competitors in earnings before interest and tax margin because we know how to manoeuvre in good markets and bad. We use the same recipes at APL.”
APL also benefits from its parent group’s leadership of the Ocean Alliance. It has 38 services where it shares slots on Ocean Alliance vessels and has ships operating in the alliance.
APL was formerly in the now defunct G6 consortium, but the Ocean Alliance is stronger, Mr Sartini says.
“It has better services and better costs, because we now have more port pairs and frequency and larger vessels. Service quality has improved with Ocean Alliance from G6.”
This has helped APL’s cost equation and it has benefited from the larger vessels of CMA CGM and lower slot costs.
“That is a key element in our recovery, Mr Sartini says. “By putting ships in a larger fleet you get much more flexibility. Sometimes, when you are small company like APL was, you get stuck with some types of vessels, which you have to employ even though they are not fit for a certain market. But with CMA CGM we have so many options. The vessels that do not fit with APL can be employed by CMA CGM on trades where they do fit and vice versa. The group has 450 vessels, rather than the 85-90 of APL.”
In another effort to cut costs, vessel ordering is now done at a group level by CMA CGM.
“There are a number of decisions that are clearly centralised and which make a lot of sense that way,” Mr Sartini says. “Fleet deployment is seen from a global perspective. Procurement is also centralised, as is chartering and bunkering.”
Any newbuildings will be those required by each brand for the years ahead, based on that company’s requirements.
New ships for the Eagle Express service, which are being renewed with the support of CMA CGM, will be purchased secondhand by APL to replace the ageing fleet now working the service in 2018. Newbuildings, however, will be contracted by CMA CGM.
“We have very efficient 14,000 teu ships at APL that we operate on the Asia-Europe and transpacific and we have been able to tap into the fleet of CMA CGM,” Mr Sartini says. “The right size for Asia-Europe in the next years will be 16,000-plus teu, but the 14,000 teu vessels fit well in many other trades, either on the transpacific, Middle East, Latin America trades; they are very versatile.”
Speaking just before CMA CGM announced it was ordering six new 22,000 teu vessels, with an option for another three, and Mediterranean Shipping Co said it would order 11 of the same size, Mr Sartini said supply and demand were broadly aligned right now.
Global supply and demand is different from what occurs on individual trades, he adds.
“In 2018 there will be an influx of larger vessels on the Asia-Europe trade, so we know next year might be a more delicate year on that trade. But everyone is making the analysis that we need to adjust so we don’t end up in a disaster.”
The market can be tweaked by one or two loops that can be restored again, so ordering ships is “not a fatality”.
“You can take action to upsize or downsize or withdraw services,” he says. “We are doing this on every single trade. Two years ago Latin America was a disaster but it has recovered. This is the type of thing carriers know how to handle. There are recipes to address a market situation and carriers have the experience to do this if demand is not sufficient.”
Added to this is the fact that not all trades rise and fall at the same pace.
“The fact that CMA CGM is global means that we can redeploy tonnage on trades that are profitable,” Mr Sartni says. “This is where APL suffered on its own; it was stuck in certain markets and did not have this global exposure.”
Nevertheless, he admits he knows no more than anyone else where the market will be in five years’ time.
“You make decisions based on the experience you have,” he says. “You know that you can fill large vessels because you have the large network, the feeders, the hubs. I remember the crisis in 2009 when we were able, because of our network, to put vessels on a direct Asia-West Africa trade when things are good, but if it is not so good you can shift those volumes to the large vessels going to Europe and then transhipping at Tangier or Algeciras. What makes us comfortable is the global network that gives us the ability to manoeuvre.”
Mr Sartini jokes, in the presence of his PR minders, that he is a robot at their command, even flourishing the pre-meeting crib sheet on which they had told him what to wear at the interview.
The truth is he is a committed company man, who has been part of the inner circle at CMA CGM for a quarter of a century.
He studied at business school in France, majoring in international marketing. “I wanted to be in an international carrier, maybe commodities, maybe transportation.”
His military service put him in the French Navy for a year, where he was based in Djibouti, “in the middle of nowhere”.
“I was spending my life in the port and began to like the sector.”
Following his navy time, he started directly in shipping with Delmas, which at the time was still independent, based in South Africa.
After four years at Delmas, he went to CMA CGM. “When I moved to CMA CGM, everyone was telling me not to do it, CMA CGM would not be sustainable. But I participated in some fantastic years of growth of the company that took us to the number three position in the world.”
Eventually, CMA CGM went on to acquire Delmas. “The same people that had told me not to leave ended up working with me again.”
Outside of his working life he has four children and was delighted to have his three daughters based in Asia last year, with two in Singapore and one in Cambodia. “Almost all the family was Asia-centric so that was very nice.”
After many years based in Marseilles he made the move to Singapore to head up APL. “Singapore is an enjoyable place to work. I have been more than 25 years in Marseille, but have been working for more than 20 years with Asia. I’ve always said it is nice to come to Asia for three or four days, but it is even nicer to live here.”
While young enough to have one more big job in his career, Mr Sartini is content for now with his role turning around APL.
“I have been working in the industry now for more than 30 years, but I am still passionate about it."