OOCL Profits Swamped in the Wake of Bigger Ship’s Cascading Effect

File image courtesy OOCL

By Mike Wackett

Hong Kong-based OOIL saw its net profit slashed by 84% in 2013, compared with the previous year, to $47m as the influx of ultra-large containerships onto the Asia-Europe trade lane displaced a number of post-panamax vessels onto other routes.

OOCL has in the past been protected from most of the ills suffered by its peers predominately serving Asia-Europe as the troubled trade only represents about 16% of the carrier’s total throughput, compared with 54% for intra-Asia and intra-Australasia and 23% on the transpacific.

Chairman of parent group OOIL, CC Tung explained: “The deployment of the largest newbuildings to the Asia-Europe trade triggered cascading into the transpacific trade, which in turn further displaced a considerable number of mid-sized ships to other trade lanes.

“This cascading effect brought considerable excess capacity to the intra-Asia and Australasia trades as well as the transpacific trade, and added volatility to the market.”

OOCL’s total liftings for the year increased by 1.5% on 2012, to 5.3m teu, with a “steady load factor” of 73%, but revenue declined 4% to $6.2bn, reflecting the damage caused by excess capacity across all trade lanes.

Revenue declined on every trade the carrier operated in last year: down 11.4% on Asia-Europe; 6.8% on the transatlantic; 3.4% on the transpacific; and 2.1% on intra-Asia/Australasia.

Mr Tung added: “Seaborne trade growth for the liner industry was subdued in 2013.  Freight levels were disappointing, especially during the first half of the year. During the second half of the year, both physical cargo movement and sentiment improved, resulting in a slightly better freight market.

“Although container shipping demand growth in 2013 was lower than forecasts, capacity supply growth was also lower than forecast, which helped contribute to a much-needed recovery in rates, albeit mild, during the second half of the year.”

OOIL does not expect the container liner industry’s nemesis, overcapacity, to disappear overnight, but took a bullish tone about the future.

Mr Tung said: “In 2014, it is anticipated that further tonnage growth will lead to continued overcapacity.  It is forecasted, however, that the demand growth in 2014 will outpace that of 2013.

“With the US recovery now a consensus, Eurozone recovery on more solid ground, and the current Chinese and Japanese economic growth trajectory, a healthier trade outlook should be expected despite recent uncertainty on emerging markets.  This is especially true on the major east west trades.

“Indeed, such development should mean improved outlook for the transpacific, Asia-Europe and intra-Asia trades and more positive results for the industry as a whole.”

OOCL, like most of its rivals, is banking on the economies of scale provided by its ultra-large container vessels to bring it through the problems of the past few years, and will receive two more 13,208teu ships this year to complement the eight delivered in 2013.

“In 2014, the group shall see the full year effect of the mega-class newbuildings delivered in 2013, all of which were developed with the most advanced design and equipped with the latest technology.  A positive contribution of unit cost reduction and, given more favourable market conditions, an improvement in margin are therefore expected in the coming year,” Mr Tung concluded.