Market Imbalance Upsets OOCL Stability as Box Carrier Sails Into the Red

oocl containership
Photo: OOCL

By Gavin van Marle

In a sign of just how weak the container shipping market has become this year, the parent company of Hong Kong-based box carrier OOCL yesterday announced that it had suffered a $15m net loss in the first half.

Despite being one of the few lines in 2012 to remain in the black, the realities of the market have subsequently caught up with OOCL, with revenues from shipping for the first six months of 2013 dropping by 3.7% to $2.8bn, on the back of a 1.5% decline in volumes and a 2.2% decrease in average freight rates.

The company has consistently been hailed as one of the most well-run in the business, with tight control on costs and a measured approach to growth that has seen it limit itself to four core markets: the three east-west Asia-Europe trades; transatlantic and transpacific (which it operates as part of the G6 Alliance); and intra-Asia.

However, it has experienced declining volumes on every lane, with the transpacific and Asia-Europe the hardest hit – volumes down 8.3% and 7% respectively – at a time when capacity across the industry has increased with a menacing relentlessness.

The debilitating rate war of recent months has also been evident, with revenue on OOCL’s Asia-Europe service declining 25% year-on-year in the second quarter alone.

While OOCL chairman CC Tung noted that there were signs of optimism over the general economic situation, he also warned investors not assume that that would translate into rapid improvements in profitability.

He said: “We need to be mindful that the slowdown of the Chinese economy, ongoing economic restructuring in Europe and the uncertainties around the sustainability and strength of the recoveries in the US and Japan continues to post challenges for the global economy.

“Against this backdrop, the industry still faces a 21% growth in capacity between today and 2015. We therefore expect margins to remain thin and volatile, and that the situation will not improve substantially until fundamental supply and demand reaches a better balance.”

The line entered the 13,000teu-plus container vessel segment, one of the last to do so, when it placed an order for ten 13,200teu ships in 2011, six of which will be chartered-out to its alliance partner NYK. Five have so far been delivered, with the remainder due for delivery this year and next.

OOCL also has four 8,888teu vessels coming next year and 2015, but construction was delayed after modifications were made to the design to increase fuel efficiency. Over the last couple of years the carrier has disposed of six 5,400teu vessels.