Weak Western growth to hit cargo demand

Shipping executive says despite higher container rates, 2013 will be as difficult as last year

PUBLISHED : Thursday, 07 March, 2013, 12:00am
UPDATED : Thursday, 07 March, 2013, 6:12am

Anaemic growth in the US and little improvement in Europe's economic conditions will make 2013 as "challenging" as last year for Orient Overseas Container Line (OOCL), the financial head of the shipping line's parent company said yesterday.

Ken Cambie, the chief financial officer of Orient Overseas (International) (OOIL), said first-quarter cargo demand was as difficult as 2012 although container rates were higher than this time last year.

He said OOCL was looking to increase rates in the coming months as cargo contracts are renewed with freight owners on transpacific and Asia-Europe trades and general rate rises are implemented. Asked if there was concern cargo owners could resist rate rises, Cambie said OOCL was seeing a typically seasonal pattern with a weak January and this was expected to be followed by a stronger spring and summer.

Johnson Leung, the head of regional transport at Jefferies, said container lines are expected to get part of the planned US$$700 per teu (20-foot equivalent units) increase on Asia-Europe trades from March 15.

Cambie said Søren Skou, the chief executive of Maersk Line, the world's largest container shipping company, expected freight rates will be higher in 2013 than last year.

But warning of potentially choppy conditions ahead, Cambie said there may be a trend of switching factory production back to the US, while Chinese manufacturers could refocus on the mainland's domestic market, creating a slowdown in exports. Both would hit cargo demand at a time when delivery of new container ship capacity will rise.

Some 274 container ships averaging 6,400 teu are set to be delivered globally this year, compared with 207 box ships averaging 6,100 teu that were delivered last year and 161 ships averaging 7,300 teu in 2014.

Cambie confirmed that the average load factor on OOCL's fleet of 98 ships fell to 73 per cent, down 3 per cent compared with 2011. But the firm was "quite happy to take 73 per cent and be profitable rather than 90 per cent and be losing money".

He was speaking after OOIL said net profit climbed 63 per cent to US$296.4 million last year, up from US$181.6 million in 2011. Revenue climbed to US$6.46 billion, as forecast by the Post in October, up from US$6 billion in 2011.

Jon Windham, the head of industrials research at Barclays, said OOIL "did well relatively" to comparable container lines. He added the outlook was "pretty negative, but probably accurate".

Net profit at OOCL more than doubled to US$197.2 million last year compared with US$86 million in 2011.

Explaining the buoyant result, Cambie said improving freight rate levels in the second quarter continued into the third quarter to give a much stronger second half.

OOCL posted a second half operating profit of US$111 million against a US$38.3 million operating loss in the second half 2011.

But he said there was a disappointing end to the year as freight rates and container volumes deteriorated in the fourth quarter.