OOIL's net profit tumbles 84pc on shipping overcapacity
Shipping line's hopes for rebound, after 84pc plunge in profit for last year, are buoyed by expectations of narrowing demand-supply gap
Orient Overseas (International) Ltd is banking on a more positive outlook for container shipping to steer it out of choppy waters after its profits plunged 84 per cent to US$47 million last year.
Freight rates in most trade routes operated by OOIL have been down as the company increased container capacity at the expense of freight rates in the second half, especially in the intra-Asia sector. Global capacity grew 5.7 per cent last year while demand only rose 4.2 per cent.
The liner company moved 5.3 million teu (20-foot equivalent units) last year, 1.4 per cent more than the previous year, but revenue dropped 5 per cent to US$5.6 billion, which translates to a 6 per cent decline in revenue per teu.
The gap between demand and supply growth, however, will narrow this year, according to the views of 13 brokerage houses and consultancies cited by the company.
"It was not common for shipping lines in Asia to make profits last year, but OOIL could separate itself from the pack by cutting costs, like what Maersk Line did last year," said Jon Windham, an analyst at Barclays Capital.
The earnings at OOIL, one of the largest integrated container lines in the world, were better than the market consensus of US$35 million.
Its operating cost per teu dropped 2.8 per cent in the second half from the first and 2 per cent year on year.
The management said it would continue to cut costs by shortening berthing time, reducing vessel speed and cutting the turnaround time of containers at ports.
Cascading, or replacing smaller vessels with larger ones, has dragged down rates in transpacific, Asia-Europe and intra-Asia trade routes this year.
"We still believe in the intra-Asia story, notwithstanding speculation about a slowdown in emerging markets," Alan Tung, the firm's executive director and acting chief financial officer, said yesterday.
Intra-Asia trade was the single largest source of business for the company and accounted for more than a third of its shipping revenue last year.
OOIL has formed partnerships with two Indian liner companies and Japan's Mitsui OSK Lines to consolidate capacity in the intra-Asia trade by sharing cargo space.
G6, the shipping alliance to which OOIL belongs, will extend the capacity consolidation to transpacific and transatlantic routes this year from existing Asia-Europe trade routes.
The company's earnings per share dropped to 7.5 US cents from 47.2 US cents the previous year.
The final dividend per share came to 1.88 US cents, compared with 7.18 US cents for 2012.
Shares in OOIL dropped 2.5 per cent to HK$35 yesterday.