OOCL loses $400 million, prepares for tough year

Excess capacity, a slowdown in restocking and shippers resisting rates increases will make 2010 a tough year for the container shipping industry, said Orient Overseas (International) Limited's Ken Cambie in Hong Kong today.

"The degree of uncertainty for the second half we don't think should be underestimated," was the grave warning from OOIL's chief financial officer.

Cambie's caution was issued at the Hong Kong-listed carrier's 2009 results announcement, which made for a sobering backdrop to the 2010 outlook.

OOIL saw its profits for 2009 falling by 245 percent, posting a full year loss of US$401 million. In 2008 the group made a $276 million profit.

The group's core container and logistics business, OOCL, reported a 35 percent drop in revenue, mainly on the back of weak freight rates and high bunker fuel prices.

"2009 was an unprecedented year in container transport," Cambie told reporters.

"Global demand fell 12 percent and the major east-west trade lanes declined even more severely: transpacific east-bound -16 percent and Asia-Europe -15 percent."

The first half or 2010 saw freight rates improving on the transpacific as companies in the US restocked or built up their inventories depleted during the recession.

However, Cambie's fear is that consumer demand could slow in the second half, which will exacerbate the industry's overcapacity problems.

This huge capacity overhang threatens the industry's supply and demand balance. Currently 10 percent of the global fleet is laid up and newbuildings on order total 30 percent of the fleet.

Idle capacity needs to be brought back online and into revenue-earning service, but Cambie said this needed to be done with caution.

"We are concerned that any mistiming could damage the supply-demand balance and that would have an impact on rates," he said.

Cambie said OOCL had taken delivery of five 4,583 TEU ships in 2009 and scrapped one vessel. No new orders were placed last year.

Six deliveries were postponed and 24 chartered ships were returned to owners, ensuring the carrier did not have to lay up any vessels. This reduced OOCL capacity by 16 percent.

"Slow steaming was extensively deployed as bunker costs escalated and spare ships became available," Cambie said. By slowing its vessels, the carrier's bunker costs dropped by 35 percent.

Nine 8,000 TEU ships will be delivered to OOCL this year.

OOCL managed to collect the $300 per FEU emergency revenue charge from shippers in the first quarter, but Cambie expressed concern at the looming contract negotiations with shippers on the transpacific.

"Contract negotiation this year will be tough with customers looking for more space protection and service, and carriers looking for better rates," he said.

The late surge in demand from shippers in the fourth quarter of 2009 quickly led to space constraints and booked cargo being rolled.

(Source: www.schednet.com)