OOCL profit slides, cites overcapacity

OOCL profit slides, cites overcapacity    Liner carrier OOCL and subsidiary OOCL Logistics netted a combined $161.8 million in operating profit in the first half of 2011, a 45.7 percent drop compared to the first half of 2010, parent company OOIL said in a financial statement Monday.
   First half revenue from the liner business increased 8.5 percent to $2.7 billion, while container volume increased 9.4 percent to 2.4 million TEUs. But OOCL's revenue fell in the second quarter on both the transpacific and Asia/Europe trades, with the company blaming overcapacity for dragging down rates, even as operating costs rose in the first half of the year.
   'Trading conditions in the first half of the year have been difficult and the outlook for the full year is disappointing,' OOIL said. 'Demand levels remain reasonable as reflected in an overall year-on-year increase in liftings, but, with the rate of new capacity introduction having outpaced demand growth, freight rates on many east/west trades have steadily deteriorated since last year. This is particularly noticeable on the Asia/Europe trades. The deterioration in freight rates has occurred despite the need for improved revenues to offset the significant increases in the price of bunker and other energy-related costs that have occurred this year.'
   OOIL said the average price of bunker OOCL paid in the first half was $593 per ton, trending up from $500 per ton in January to $642 in June.
   Revenue from the line’s transpacific services increased 6.9 percent in the first half, due to a 2.5 percent increase in volume and a 4.3 percent increase in revenue per TEU. Average revenue per TEU dropped 17.8 percent on Asia/Europe services.
   'The container shipping industry remains extremely competitive, with a fine balance between supply and demand that sees rates fall rapidly when new capacity is introduced in an injudicious manner,' OOIL said. 'Improving services for customers so as to attract additional volume and to avoid profitability being unduly sacrificed is essential given the ongoing cost pressures that all operators face.'
   A bright spot for OOCL continues to be intra-Asia, where first half cargo volume increased 14 percent 'due to strong ongoing economic growth in most of the major Asian economies.' Revenue grew 24.2 percent in the first six months of this year, with average revenue per TEU increasing 8.9 percent.
   'However, the increase in revenue was more than offset by cost increases,' the line cautioned.
   Just more than half of OOCL's first half volume came from the intra-Asia trade, though only 32 percent of its revenue is derived from intra-Asia, emphasizing the shorter and less lucrative nature of services in the region. In contrast, transpacific volume accounted for less than a quarter of OOCL's first half volume, but represented 35 percent of revenue.
   Reflecting the poor demand levels of late in North America, second quarter transpacific volume fell 3.6 percent to 301,833 TEUs, even as first half transpacific volume rose 2.5 percent to 598,266 TEUs.
   'The late introduction of peak season surcharges on the transpacific trade, despite reasonable levels of demand, is an indicator of the difficult trading conditions expected for the remainder of the year,' OOIL warned. 'Capacity deployment issues in the industry are likely to continue in the near term, and the traditional peak season lift in demand may give only limited improvement, at best, in average freight rates over the remainder of the year. There is uncertainty as to how strong consumer demand in the United States will be over the Thanksgiving and Christmas retail selling seasons this year following the recent termination of the U.S. government's fiscal and monetary stimulus programs.'
   Meanwhile, the rapid fall in Asia/Europe rates is easily seen in the second quarter, where OOCL's volume increased 18 percent to 224,572 TEUs, while revenue on the trade fell 13 percent to $283 million.
   'While the economies of northern European countries are performing well, the support needed for those members of the Euro-zone with excessive levels of sovereign debt may constrain consumer demand,' OOIL said. 'Most Asian and commodity-based economies continue to show strength, with Japan rebuilding following the earthquakes and tsunami this year.'
   Meanwhile, OOIL pointed out that it has remained profitable in the first half despite the 'disappointing trend in freight rates.' The line took delivery of one 8,888-TEU vessel in the first half, the first of a series of eight such ships to be delivered through 2014.
   'OOCL's results in the first half, particularly its operating margin, remain at an acceptable level despite the high price of oil,' the company said. 'Despite the poor short-term outlook, the group remains in good financial health and is on a clear path of sustainable competitive growth.'
   OOCL is the world's 12th-largest liner carrier by fleet capacity.