China Shipping Container Lines profits hammered by soaring costs

China Shipping Container Lines profits hammered by soaring costs China Shipping Container Lines Co. Ltd. said Tuesday that the slowdown in cargo demand from U.S. and European trade lanes, compounded with higher operating costs, negatively impacted its first half profit and make it difficult to be optimistic about the rest of the year.
   China Shipping’s net profit for the six months ended June 30 was RMB 637.2 million ($94 million), down 45.1 percent compared to RMB 1.16 billion in the same period in 2007. Revenue for the period improved 4.8 percent to RMB 18.2 billion, but most of the sales gain was wiped out by a 9.5 percent hike in total service costs, up to RMB 17.1 billion ($2.5 billion). Bunker fuel consumption in the first half was up 38.7 percent year on year at RMB 4.7 billion ($685 million) with the company’s average purchasing unit price being $540.61 per ton, representing an increase of 67.1 percent against $323.55 per ton for the same period of last year. As a consequence of the higher costs, China Shipping’s first half operating profit slumped 44.7 percent to RMB 878.7 million ($129 million).
   China Shipping’s volume in the first half increased 7.3 percent to 3.57 million TEUs. The company said that despite the drop off in the European and U.S. trades, its development of domestic Chinese marine transport provided strong support to the group’s business. Shipping capacity as of June 30 reached 452,028 TEUs, representing a net increase of only 5,991 TEUs as compared with the end of 2007.
   On a trade-wide basis China Shipping's volumes and revenue for the first half were:
   ' Pacific Ocean: 680,524 TEUs, down 11.8 percent; RMB 5.66 billion ($827 million), down 16.9 percent.
   ' Europe/Mediterranean: 701,162 TEUs, down 2.1 percent; RMB 5.98 billion ($873 million), up 10.8 percent.
   ' Asia Pacific: 834,112 TEUs, up 32.8 percent; RMB 2.82 billion ($413 million), up 18.2 percent.
   ' China domestic: 1.26 million TEUs, up 13.4 percent; RMB 2.74 billion ($401 million), up 45.4 percent.
   ' Others: 96,310 TEUs, down 6.7 percent; RMB 1.03 billion ($151 million), up 13.1 percent.
   “The second half of the year is generally the traditional peak season of the shipping industry with all lanes entering their busiest period in the year. However, liner shipping companies will still be expected to face pressure from the macroeconomic environment and pressure from various microeconomic factors such as increase in cost, decrease in freight rate and mismatch between supply and demand. Therefore, the operating situation is still hard to be optimistic,” China Shipping said in a statement to the Hong Kong Stock Exchange.
   The company said it will pursue a number of strategies to enable stable and sustainable development including optimizing the network of trade lanes, strict control of multitransshipment arrangements, adjusting capacity from poorly performing trades into more profitable routes, as well as continuing to make acquisitions of container shipping-related assets.