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OOIL boosts profits in 2015 despite declining revenues

Despite a poor second half last year, the Hong Kong-based parent of ocean carrier OOCL expects to reap benefits from its new Middle Harbor terminal at the Port of Long Beach when it opens later this year.

   Orient Overseas (International) Ltd., the parent company of container carrier OOCL, reported a profit of $283.9 million in 2015, a 5 percent increase from the $270.4 million it earned in 2014, even though revenues dropped 8.7 percent to $5.95 billion compared with $6.52 billion the previous year.
   The company was also able to record higher profits for the year despite much weaker earnings in second half of the year – $45.2 million in the second half of 2015 compared with $89.2 million in the second half of 2014. Revenues in the second half of 2015 were $2.91 billion compared with $3.28 billion in the second half of 2014. (Unlike many companies that report financial results quarterly, Hong Kong-based OOIL does so only twice a year.)
   “At the start of 2015, container shipping companies enjoyed unforeseen conditions that were, almost without exception, positive,” C. C. Tung, the chairman of OOIL, said of the results. “For those few months, substantially lower fuel costs and gains in momentum in the U.S. recovery drove industry-wide results that were better than anticipated.”
   “Unfortunately, the economic context became increasingly complicated as the year progressed. The fall in oil prices led to a reduction in energy-related capital expenditure, and to some producers bordering on default. Trade growth was limited, and the Fed was signaling (and eventually implemented) a start to the normalization of interest rates. The second half of the year saw retail sales stagnating further, thereby reducing imports from Asia,” he added.
   “By the end of the year, the worsening imbalance in supply and demand, driven by large amounts of new tonnage being introduced at a time of lackluster volume growth in many trades and even shrinkage in others was having a dramatic effect. Capacity had started to be taken out of the market in response to slower demand growth, and having witnessed a substantial fall in rates, lines were forced to surrender all of (or more than) the benefit of lower fuel prices to their customers,” said Tung.
   “For the full year 2015, OOCL’s liftings were essentially flat, with a drop in revenue, and of revenue per TEU of 10%. This reflects the challenging environment, particularly as the very tough second half took hold,” he added.
   During 2015, OOCL took delivery of four 8,888-TEU ships from Hudong-Zhonghua Shipbuilding (Group) Co., Ltd in China and in March it ordered six 20,000-TEU class vessels from Samsung Heavy Industries Co., Ltd. in South Korea for delivery in 2017.
   The company said it optimized fleet utilization by selling two 11-year old 8,063-TEU ships and then chartering them back for a three-year period.
   Tung predicted that “scale will continue to be a key driver of sustainability in the industry.”
   “A key part of how OOCL achieves scale is through having the right fleet, with modern and fuel efficient vessels built to the right size and specifications, driving unit cost efficiency even at today’s lower fuel prices,” he said. “We are delighted with the better-than-expected efficiency gains achieved through our 13,208-TEU vessels replacing smaller vessels on certain routes, and look forward to enhancing these benefits of scale further with our larger vessels, as they enter into service in 2017”
   He noted that OOCL, currently a member of the G6 alliance, “has participated in alliances, in one form or another, for decades. We continue to believe that alliance structures are an important means of achieving scale and enhancing product quality. OOCL continuously seeks to identify opportunities for additional efficiencies and savings through these arrangements.”
   Tung also said the company’s Middle Harbor Redevelopment Project in the Port of Long Beach, will enter into the first phase of its operation this year.
   “While the final completion of the project is not scheduled to occur until 2020, we fully anticipate that even from 2016 we will start to reap benefits from this large capital investment. Our new terminal will be able to ensure the highest levels not only of operational efficiency but of environmental friendliness and sustainability,” said Tung.
   Looking ahead to the remainder of the year, Tung said, “As for 2016, the first quarter has so far been characterized by great uncertainty. The IMF forecast for global economic growth has been reduced. The US economic recovery seems to be solid, but not spectacular, and continues to be influenced by external factors.
   “Both Japanese and European growth levels are low, with few predicting with any confidence that the corner will be turned in 2016. Chinese growth has continued to slow, presenting challenges to emerging market and commodity economies. A number of central banks are entering into uncharted territory by imposing negative interest rates. Even if at a lower rate than in 2015, new shipping capacity continues to be introduced.”
   “We believe that we are well positioned to face the coming challenging year, as well as to benefit from the up cycle when it comes. We look forward to furthering our position as one of the leading carriers in the industry,” Tung said.
   In 2015, OOCL Logistics continued to grow its volumes and profitability, said Tung, adding that the parent company “remain(s) committed to building up our activities in this sphere.”
   “Our logistics business shares the OOCL philosophy of providing excellent service to our customers, and of doing so by providing a chosen range of services in targeted markets and with specific customer bases that will together drive profitability and growth for our shareholders,” he said.

Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.