© Khunaspix Dreamstime.

Ocean carrier OOCL’s first-quarter performance indicates there is concern that its normally conservative parent, Orient Overseas International, might have been a tad optimistic about the level of profit this year.

Earlier in the year, OOIL told investors that, after posting just a $47m net profit for 2013,  it expected to reverse the decline and deliver an estimated $200m profit in 2014.

The rewards would be reaped from a “significant improvement in unit costs” and the deployment of “more efficient newbuildings”, especially on the troubled Asia-Europe tradelane, it said.

Although the Hong Kong-headquartered carrier outperformed most of its peers and produced a profit last year, it was understandably disappointed to see a year-on-year decline in net profit of 84%.

The optimistic 2014 outlook from OOIL was, in the main, driven by the full-year economy-of-scale benefits expected from the deployment on Asia-Europe of four 13,200teu ships during the latter part of last year, and would be further boosted by two identical ultra-large containerships stemmed for delivery in the first half of this year.

However, looking at the operational numbers reported for OOCL for the first three months, there is little evidence to suggest that this year is shaping up any better than 2013.

Indeed, while OOCL’s liftings surged by 8.9% on Q1 2013, to 1.35m teu, revenue inched up by a modest 1.7% to $1.39bn, indicating that sacrifices had to be made on rates to achieve the healthy volume growth.

But Asia-Europe was by no means the worst performing sector, recording a 9.7% increase in throughput matched to a 7.6% rise in revenue.

In fact Asia-Europe represents only around 17% of OOCL’s business; and the main underperforming routewas the carrier’s biggest tradelane, intra-Asia/Australasia, accounting for approximately 53% of its business. Here there was volume growth of 14.5%, but revenue lagged at just 4.2% up on last year.

Moreover, in its 2013 annual report, OOIL highlighted the impact of the introduction of more ultra-large container vessels (ULCVs) on the Asia-Europe on other tradelanes by the enforced cascading of larger-than-required ships.

It said: “Overall, due to the vessel cascading effect, freight rates in the transpacific and intra-Asia trades – our two largest by revenue and volume – were less than ideal.”

Nonetheless, the operational performance of OOCL in the first quarter may not necessarily translate into a below-budget financial performance if the carrier manages to achieve the across-the-board cost savings anticipated, as well as the advantages from the synergies of the enlargement of the G6 alliance.

But as a bellwether for the industry – especially for carriers that posted massive losses last year – OOCL’s numbers represent a stark warning of how important it will be in the crucial next few months for carriers to achieve the maximum percentage from general rate increases, while being more judicious in their management of supply and demand.

Comment on this article

You must be logged in to post a comment.
  • Ricky Forman

    April 28, 2014 at 3:13 pm

    Carriers should be selling container FFA’s to mitigate their spot rate exposure. This natural hedge along with reducing unit costs is the only way forward for them. Carriers are literally throwing money down the drain by not protecting the income side of their business.