The announcement of the $1.2bn sale of APL Logistics to Kintetsu World Express sees NOL selling off a business that it acquired in 1997 when it bought APL, then known as American President Lines (APL).
Successive chiefs of NOL have declared ambitions to rapidly grow APL Logistics, but it never quite seemed to happen, apparently losing out to the highly capital intensive container shipping. Current NOL president and ceo Ng Yat Chung said as much on Tuesday announcing the sale explaining that the company did not have sufficient resources to develop both logistics and container shipping.
Although known primarily as a container line, this is probably the only time since its very early days in the late 1960's that NOL has focused solely on liner shipping. Over the years NOL has been in the bulk shipping sector, built up significant tanker interests under AET, which it sold to MISC in 2003, and is also a player in the logistics sector.
Certainly one cannot argue with the price tag that NOL achieved on the sale of APL Logistics, and booking a $900m gain will be a good boost to its balance sheet. However, the sale also comes at time when the company has consistently struggled to bring its liner shipping business back to profitability. Of the last six years from 2009 – 2014 NOL has only made a profit in one of them - 2010.
Last year saw NOL post a net loss of $260m. In its earnings release the company chose to focus on its improving core EBIT where it lost $76m in 2014, compared to a $167m loss in the previous year. However, this figure was bolstered by $67m core EBIT profit from APL Logistics, liner arm APL reported a core EBIT loss of $143m.
On Tuesday Ng stated, "Our goal is always to get liner back to profitability as soon as possible." How NOL will actually get there is rather less clear.
Ng did not sugar coat the current situation saying prospects were uncertain given the current macro-economic environment. "What is certain is the overcapacity. The continuing labour situation (in the US West Coast) is bit of a concern for the whole industry," he said. While lower fuel costs are of a benefit, Ng said the longer term impact on freight rates remained uncertain.
He also referenced a continued focus on cost savings. It seems that every year NOL announces an impressive achievement in cost savings yet somehow this never manages to bridge the gap to profitability.
Against this background of uncertainty the company is in a somewhat curious place in the world of global mainline container shipping where scale and size seem to trump all. APL is ranked as the world's 10th largest container line by Alphaliner with 551,678 teu in capacity and a 2.9% market share. With its newbuilding completed it is set to be overtaken Hamburg Sud, currently in the number 11 slot.
APL's largest vessels are 14,000 teu and so far it has showed no signs of joining the 18,000 – 20,000 teu fray. The costs of doing so would be significant and very quickly gobble up the $900m gain from the sale of APL Logistics.
This leaves question of mergers and acquisitions, be it as the acquirer or the acquired. Quizzed as to whether NOL would sell its liner shipping division if it continued to lose money Ng described the question as "hypothetical". But he did also say, "Your question is really are we open to options on the liner business. As part of business process we evaluate all options – and all means all."
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