OOIL and Yang Ming see better revenue growth, but bottom line results diverge as finance and fuel costs hit results.
Two of Asia’s largest ocean carriers reported full-year results, which highlighted the ongoing challenges facing the industry.
Orient Overseas (International) Limited (OOIL) (HKEX: 316) , a subsidiary of one of China’s largest shipping companies, reported better revenue and operating profit thanks to the late 2018 container import surge. But rising financial costs sent 2018 net income overall lower.
OOIL, which officially became a unit of China’s Cosco Shipping last year following a 2017 acquisition, reported revenue of $6.57 billion, a 10 percent increase from last year with operating profit of $262 million rising by a similar percentage.
The company, which still keeps a small public float on the Hong Kong Stock Exchange for financial reporting purposes, said it saw strong growth last year for its container shipping business, especially in the Asia-Europe and Trans-Pacific trades.
The container ship business saw overall liftings rise 6 percent last year to 6.7 million twenty-foot equivalent units (TEU).
Its trans-Pacific trade grew at 9 percent, rising to 1.97 million TEUs, with revenue there rising an even faster 18 percent to $2.4 billion.
In the Asia-Europe segment, volume grew over 14 percent to 1.3 million TEUs, but a prolonged period of weak rates and over-capacity meant revenue was up just under 8 percent to $1.18 billion.
Overall utilization on OOIL’s fleet was just under 83 percent for 2018, about flat with the year earlier.
Despite the gains, net income fell 21 percent to $108 million. The drop stems largely from a large increase in finance costs, which rose 46 percent from a year ago. OOIL increased the size of its fleet last year with the addition of six, 21,000-TEU ships.
OOIL also reported “strong performance” at its Long Beach Container Terminal (LBCT), with stand-alone profit at LBCT reaching $32 million last year compared to a $9.7 million loss in 2017. LBCT, one of two fully automated terminals in the Los Angeles-Long Beach port complex, said the second phase of its automation has been operational for a year.
OOIL is required by the U.S. to divest LBCT due to its acquisition by Cosco and it said it expects to complete a sale “within the coming months.”
With the OOIL fleet, Cosco, which is also part of the Ocean Alliance, is the third-largest container ship company in the world with some 2.7 million TEU of capacity, and another 180,000 TEU of capacity on order.
OOIL said it was “cautiously optimistic” on 2019 for the shipping industry. Global gross domestic output is expected to reach 3.5 percent this year, according to the International Monetary Fund. OOIL said China’s economy, the biggest consumer of shipping services, “remain(s) stable and strong and a more open China provides new driving forces for the development of the global free trade.”
OOIL said its relationship with Cosco will allow it further opportunities to take part in China’s Belt-and-Road initiative.
Taiwanese peer Yang Ming (TWSE: 2609) saw similar top-line growth with 2018 revenue rising 8 percent from a year earlier to $4.7 billion. Volumes likewise were up 11 percent for the year, reaching 5.2 million TEUs.
But bottom-line results were “significantly impacted by higher global bunker fuel prices” Yang Ming noted with a 31 percent rise last year. Yang Ming said that last year’s supply growth exceeded demand, resulting in “freight rates (struggling) to rise to levels that could offset against the higher bunker costs.”
Yang Ming, which operates in THE Alliance container ship consortium, also echoed the view that 2019 could show more balance in the container ship markets with supply growth of 3.1 percent coming up against demand growth of 3.6 percent. The balance could tip further in favor of ocean carriers should more companies decide to scrap older, inefficient vessels due to the International Maritime Organization’s upcoming rule to reduce marine fuel sulfur emissions.
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