Port Report: Ocean Network Express looks to bite into profit after ‘teething problems’

One-year old container ship joint venture expects customers to come back with more boxes and pay higher rates in 2019.

Ocean Network Express (ONE) set out ambitious revenue targets and its first profit after “teething problems” at the one-year old container ship company.

The sixth largest container ship operator in the world, ONE believes it can win additional customers, fill up more space on its ships, get higher value freight, and improve its fuel efficiency to hit those targets in 2019.

All in, it expects a 17 percent jump in revenue this year to $12.7 billion and an $85 million profit.

That would be sizeable turnaround from the $10.9 billion revenue and $586 million loss it reported for last year.   

Still, ONE’s loss was better than the loss Korean firm Hyundai Merchant Marine’s reported last year, but worse than the loss that Taiwanese-peer Yang Ming reported.

ONE’s results were marginally better than the $594 million it originally expected to lose for 2018.

The boost came from a $35 million improvement in freight rates and an $18 million boost in detention and demurrage fee collections. Offsetting the gains was a $31 million loss from a decrease in liftings and a $10 million increase in the price of marine fuel.

In its primary market from Asia to North America, ONE shipped 2.66 million twenty-foot equivalent units (TEU) in containers last year.

The volume was under the 2.86 million TEU that China’s Cosco Shipping Holdings (HKEX: 1919) lifted on the same trade lane, excluding the results from Orient Overseas International Lines.

On the Asia-to-Europe trade lane, ONE carried 1.68 million TEU in containers. ONE did not provide 2017 lifting volume data.

The tariff-driven surge of container imports into the United States from China gave a short boost to rates with ONE reporting a 7 percent increase in rates during the second half of 2018. Rates for 2018 overall were up 4 percent in the Asia-North America trade lane.

The Asia-to-Europe trade lane saw a fourth quarter blip with rates rising 7 percent as well, before settling back down to 4 percent for the year.     

As for this year, ONE is optimistic that any customer business lost due to the joint venture will be restored as part of its “stabilization and recovery from teething problems” in 2018.

It expects a $400 million uplift in 2019 profitability from higher container volumes and better utilization of its ships.

Along with the regaining the customer defections, it has other goalposts for hitting its $85 million profit mark.

It expects a $260 million improvement from fuel and fleet efficiencies. Getting higher value freight will result in a $190 million increase in profitability. It also expects that coming contract renewals will result in a $270 million gain in freight rates. And that it can further reduce overhead another $50 million.

“Measures will be taken to improve revenue and reduce expenditures such as improving the cargo portfolio, reducing fuel oil costs, and cutting overhead costs,” ONE said in a statement. “The negotiations for long-term contracts are reflected in the assumption for freight rates.”

Those gains will be needed to offset the $500 million cost increases it expects from fuel costs, accounting rule changes and other expenses this year.

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