93% FALL IN APL’S RESULT PUSHES NOL INTO THE RED
A sharp deterioration in the profit results of APL Liner last year forced its parent company, Singapore-based Neptune Orient Lines, to report a group deficit of $57 million for 2001, as compared to a net group income of $178 million in 2000.
“It was the liner business that had a particularly tough and disappointing year and this was the main cause of the group’s loss,” said Flemming R Jacobs, group president and chief executive officer of NOL.
APL Liner posted an operating income before income tax, net interest, and non-recurring items of $19 million last year, a fall of 93 percent from its $284-million operating profit in 2000. The liner arm’s revenue dropped by 6 percent, to $3.6 billion, from $3.8 billion, despite a 3-percent increase in container volume handled.
The NOL group blamed overcapacity and lower freight rates for the $265-million reduction in the operating result of APL Liner. “The downturn in world trade coinciding with a substantial addition of ship capacity had a significant impact on the liner business and therefore on the group as a whole,” NOL said.
“Due to the double digit increase in container vessel capacity that was to be added globally, freight rates were already beginning to soften in late 2000, but they deteriorated significantly during the year, reaching unprecedented and unsustainable levels in some trades,” Jacobs said. Globally, APL rates decreased by 9 percent in 2001, to an average of $2,304 per 40-foot equivalent units, from $2,523 in 2000.
“Rates disintegrated,” Jacobs added. “In just one year average trade-weighted rates plummeted to levels last seen during the Asian crisis in 1997/98. But back then, it had taken three years for the rates to erode that far.”
APL Liner accounts for 76 percent of the NOL group’s total revenue, while APL Logistics’ share is 15 percent and NOL Chartering and Enterprise activities’ 9 percent.
NOL’s group operating income before income tax, net interest, and non-recurring items fell to $79 million in 2001, from $349 million in the previous year.
NOL said that APL Logistics suffered an operating deficit of $16 million last year, as compared to an operating income of $37 million in 2000, while its revenue rose 72 percent, to $723 million, from $420 million. The group’s chartering arm, including tanker shipping, increased its operating income to $85 million, from $49 million in 2000, while revenue rose to $359 million, from $350 million.
“APL Logistics grew its topline by 72 per cent in 2001, but the bursting of the dot-com bubble had a major negative impact on Direct Logistics, which was part of the acquisition of GATX Logistics early in 2001,” Jacobs said. Integration costs associated with the acquisition of GATX Logistics and of German freight forwarding and distribution specialist Mare Logistik & Spedition GmbH, together with the negative impact of Direct Logistics, hit APL Logistics’ bottom line.
NOL said that it has increased productivity across all business units, and reduced staff numbers in the liner business globally by nearly 10 percent.
“We achieved a 6-percent reduction in costs associated with bills of lading processing and a 17-percent increase in productivity largely as a result of e-commerce developments,” Jacobs said.
Jacobs warned of continuing losses this year unless container freight rates increase, but the NOL group expects APL Logistics to improve its result this year. Falling rates in the liner business had continued through to the end of 2001, which meant that this year started from a lower base, he said.
“Given the unfavorable and uncertain operating environment, overall performance for the year is not expected to improve,” the NOL group said.
The highly-indebted NOL group increased its borrowings to $2.6 billion at the end of 2001, from $1.9 billion a year earlier, whereas shareholders’ funds decreased by 6 percent over the same period, to $899 million.
In a separate development, NOL announced the retirement of its chairman, Lua Cheng Eng. Cheng Wai Keung, vice chairman, will be promoted chairman after NOL’s annual general meeting on May 22.