Orient Overseas CFO: Industry to “Head Back to Break-Even Level in 2012”

HONG KONG (Dow Jones)–Orient Overseas (International) Ltd. (0316.HK) said Monday it expects trading conditions in 2012 to remain tough as high fuel costs and oversupply of capacity continue to weigh on the Hong Kong-based container shipper’s bottom line.

The company–controlled by the family of former Hong Kong Chief Executive Tung Chee-hwa–said net profit in 2011 was US$181.6 million, down sharply from a net profit of US$1.87 billion a year earlier largely due to a one-gain gain that boosted the 2010 figure. Falling freight rates due to weakening demand for international trade also hit its profitability. Still, the result was better than the average US$128.93 million net profit forecast of 13 analysts.

The global shipping industry has been hit by the European debt crisis and the uncertain growth outlook for the U.S., with demand for trade dwindling since the second half of 2011 and freight rates falling as a result.

Orient Overseas Chief Financial Officer Ken Cambie told a news conference that he expects global shipping capacity to grow by around 9% to 10% in 2012, outpacing a 5% to 6% growth in demand for container shipments, which would put further pressure on freight rates.

Cambie noted that despite several rate hikes from the start of this year, many of the company’s routes hadn’t been profitable due to high fuel costs.

However, he expects the shipping industry to “head back to break-even level in 2012,” as industry players have agreed to make a concerted effort to raise shipping rates by May.

Member carriers in the Transpacific Stabilization Agreement (TSA), including Orient Overseas and Denmark’s Maersk Line, plan to raise rates by at least US$500 per 40-foot unit, or FEU, for cargo to the U.S. West Coast and at least US$700 per FEU for all other destinations no later than May 1.

Following a 20% capacity cut on the Asia-Europe route from the fourth quarter 2012, the Hong Kong-listed container shipper announced several rate hikes from February on certain routes, in a bid to restore profitability. Cambie said that the company has no current plan “to idle further vessels” after the previous cut, but will consider adjusting capacity if freight rates aren’t satisfactory.

In 2011, it shipped a total 5.03 million twenty-foot-equivalent units, or TEUs, up 5.6% from 4.77 million TEUs a year earlier, but revenue from its shipping division fell 1.5% to US$5.53 billion from US$5.62 billion a year earlier as overall freight rates fell 6.7% during the same period to US$1,099 per TEU, it said.

The company’s 2011 revenue fell 0.3% to US$6.01 billion from US$6.03 billion. It didn’t pay a final dividend, as the container shipper aims to preserve more cash to weather the downturn.

It paid an ordinary final dividend of 23 US cents and a special dividend of 2.093 US cents for 2010 after the company struck a US$2.2 billion deal in early 2010 to sell its China property business to Singapore’s CapitaLand Ltd.

-By Joanne Chiu, Dow Jones Newswires