Orient Overseas profit down 33% in first half
Orient Overseas (International) Ltd (OOIL) said it maintains a cautious market outlook owing to container-shipping overcapacity as it reported a first-half net profit fall of 33 percent as a result of persistently low freight rates and high fuel prices.
Container shipping - a barometer of the world's economic health - has been hit by the European debt crisis and an uncertain growth outlook for the US, which has seen demand for trade dwindle since the second half of 2011. Freight rates have fallen as a result. OOCL is OOIL's container arm.
In spite of concerted efforts by world-wide container lines to restore profitability through a slew of rate hikes since the start of the year, market outlook for the industry remains uncertain because of persistent weak demand as well as a glut of shipping capacity, reported Dow Jones Newswires.
"In the absence of new solutions it'll take some years for the US to fully recover to a more healthy (economic) growth rate," Orient Overseas chief financial officer Ken Cambie told a news conference, adding that he expects an extended period of lower (demand) growth for the industry because of the US and European situations and smaller growth in China.
Cambie also warned that a possible influx of new-ship building remains a major overhang and could weigh on freight rates in the seasonally weaker fourth quarter following the traditionally peak season of the third quarter.
The industry needs to absorb capacity for an additional 2.4 million TEUs over the next 18 months, representing around 15 percent of existing capacity, according to Orient Overseas. Until this is taken up, freight rates will remain pressured, he said.
However, Orient Overseas, which ships finished and semi-finished goods ranging from toys to garments to the West from Asia, has no current plan to delay delivery of vessels on order, Cambie added.
The company, which is controlled by the family of former Hong Kong chief executive Tung Chee-hwa, said its first-half net profit fell 33 percent to US$116.8 million, compared with a net profit of $175.0 million a year earlier.
Excluding the $42.6 million dividend contribution from its 7.9 percent-owned real-estate investment trust Hui Xian REIT, the company's core operating profit before tax fell 53 percent to $82 million from $176.4 million.
Revenue rose 6.9 percent to $3.12 billion from $2.92 billion.
Orient Overseas has a fleet of 92 self-owned and managed vessels. It plans to take delivery of 10 13,000-TEU carriers from Samsung Heavy Industries and six 8,888-TEU ships from Hudong-Zhonghua Shipbuilding (Group) between 2013 and 2014.
Of the 13,000-TEUs vessels, four will be chartered to Japan's Nippon Yusen Kaisha for three years upon arrival in 2013, Cambie said, adding that some charters can be returned if demand weakens further.
First-half shipping volume rose 6.1 percent to 2.59 million TEUs from 2.44 million TEUs, with revenue rising to $2.88 billion from $2.74 billion, boosted by an improvement in freight rates, particularly on Asia-Europe services, it added.