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Lower costs just a panacea for container lines

Lower costs just a panacea for container lines
The common denominator behind the improved performances of liner companies in the current reporting period has been the sharp drop in bunker prices. This has made up for the drops in revenue per teu they have experienced.


Orient Overseas (International) Ltd, the parent of Orient Overseas Container Line (OOCL) saw its container and logistics segment post a 72% gain in operating profit to $184m on a 37% drop in bunker costs in the first half. This more than made up for the 6.4% fall in container business revenue.

Sinotrans Shipping meanwhile reported a 32% drop in voyage costs to $38.9m. Bunker costs make up the bulk of this component. Singapore’s Neptune Orient Lines (NOL) also said it achieved cost savings of $107m for the second quarter from lower bunker costs.

While cutting down on costs has proven effective in enhancing performance, the glaring issue most have dealt with only cursorily is the continued weak volumes on almost all trades and the dim prospects for improvement in the situation. In particular during the last reporting period, the latest concern for the industry is the dramatic slowdown in China’s domestic economy.

At its recent first half results briefing, OOIL acting cfo Andy Tung acknowledged that China’s import and export figures are “not particularly robust”. He noted however that “China’s domestic economy matters to us but equally if not more important is the economies of North America and Europe; ultimately the robustness of these economies drives consumption and this drives freight”.

More Intra-Asia focused line Sinotrans Shipping meanwhile said: “In the first half of 2015, the overall container shipping market of Intra-Asia area remained weak. Although the seaborne demand for container shipping in Intra-Asia area maintained a steady growth, the freight rate still declined.”

Sinotrans blamed these declines mainly on the significant increase in capacity due to the launch of new services and bigger vessels. Indeed trade figures show capacity on this trade at a double-digit rate for almost the whole of last year and has only started to tail off at the beginning of this year.

NOL said: “Global economic prospects and freight rate increases remain uncertain. Freight rates will continue to face downward pressure due to persistent overcapacity and weak trade growth.”