By Mike Wackett
Hong Kong-headquartered Orient Overseas International has made good on its pledge to reverse the declining profitability of its liner shipping subsidiary OOCL. It posted a net profit of $181million for the first half of 2014, which compares with a loss of $15 million in the same period of 2013 – although today’s numbers include a $51million contribution from investment income and a revaluation of its Wall Street Plaza property. OOIL attributed the improved performance to better cost control and “robust growth in cargo demand in the major European and American markets”.
The bottom line was assisted by an 8 per cent reduction in fuel costs, achieved – despite OOCL carrying 10 per cent more containers (2.8million TEUs) – by its strategy of deploying bigger and more economical ships. OOIL chairman CC Tung said: “Into 2014, there has been cargo volume increase and a generally more positive sentiment than last year. In total, it is expected that the container transportation industry posted improved results for the first half of 2014.” But he also cautioned: “Such improvement however, is likely to be capped, given the large newbuilding orderbook and the anticipated next round of newbuildings that will likely materialize over the next twelve months.”
Earlier this year, OOIL told concerned investors it expected to “reverse the decline” in its liner shipping business by improving unit costs with the deployment of “more efficient newbuildings” on its Asia-Europe services. OOCL took delivery of two 13,208-TEU ships that were phased into the G6 alliance fleet servicing the Asia-Europe trade, and its prediction in April to shareholders of a $200million full-year profit appears to be comfortably on track.
In previous years, OOCL’s relatively small involvement in the Asia-Europe trade had insulated it from the full impact of its various rate wars; more than half of its throughput is derived from intra-Asia and Australasia, with only around 17 per cent of its business concentrated on Asia-Europe. Indeed, OOCL was considered a model example of an ocean carrier without too many eggs in one trade basket.
However, the cascading of bigger ships onto routes that necessarily did not need the extra capacity – the consequence of the arrival of ultra-large container vessels on Asia-Europe, had a negative impact.
Mr. Tung said that, given the market conditions, the first half of 2014 “was satisfactory for OOIL”. He added: “During the second half of the year, the group will redouble its efforts in its focus on cost efficiency and operating margin. As the global economy gradually recovers, there is expectation that the container transport industry will find itself in a more positive operating environment.”
Meanwhile, the Shanghai Containerized Freight Index spot market for North Europe paused for breath early in August, dropping by $114 to $1,341 per TEU. However this is still above the average rate in the past 18 months of $1,164 per TEU. With several carriers having announced general rate increases for later in the month, underpinned by tight capacity, prospects are looking better for OOCL and its peers.
Reprinted courtesy of The Loadstar (www.loadstar.com)