The Straits Times
May 10, 2012
Container shipping firm sinks deeper into the red
Firm to restructure as it marks fifth straight quarter of losses
By Yasmine Yahya
CONTAINER shipping firm Neptune Orient Lines (NOL) has posted yet another quarter of losses, as its new cost-cutting regime fails to stem the bleeding caused by high fuel costs and low freight rates.
With the global shipping industry mired in gloom, NOL has sunk far deeper into the red, recording a net loss of US$254 million (S$319 million) in the first quarter ended April 6.
This is a major blowout from the US$10 million loss in the same period last year, and marks the fifth straight quarter of losses for the firm.
NOL managed to trim US$100 million from its spending between February and April, and said it is on track to save US$500 million in total this year, by cutting down on fuel consumption and having a leaner operational budget.
It is also undertaking an organisational restructuring that will result in additional annual savings of about US$70 million from next year onwards, the firm said in a statement.
'There were positive signs in the first quarter - the freight rate increases in March and growth in the logistics business,' said chief executive Ng Yat Chung. 'But we must continue to aggressively manage our operating costs, and streamline our organisation for greater efficiency.'
NOL's group revenue in the first quarter slipped 3 per cent from a year earlier to US$2.38 billion.
Revenue fell 4 per cent in its liner shipping business, APL, and pre-tax losses deepened to US$246 million despite higher volumes on the intra-Asia and Latin American trade routes, as freight rates remained suppressed by the sheer number of ships plying the seas.
'Rates have been moving up since March, but not yet enough to offset the high cost of fuel,' said APL president Kenneth Glenn. 'Much more remains to be done to increase rates and manage down expenses.'
In the first quarter, APL mitigated its losses by reducing fuel consumption by 75,000 tonnes, even though overall cargo volume increased 4 per cent in the same period.
NOL's container logistics business, APL Logistics, fared slightly better, with revenue rising 7 per cent in the quarter to US$394 million with strong demand for rail- and land-based services from automotive customers.
APL Logistics' core pre-tax earnings fell 38 per cent from a year ago due to higher operating and technology costs incurred from investments in growth strategies, but it still remained profitable, taking in US$13 million.
'We increased revenue and sustained profitability despite economic uncertainty in key markets,' said APL Logistics president Jim McAdam. 'Our emphasis remains on investing for profitable growth.'
Last month, NOL raised S$400 million by selling five-year bonds to fund the expansion of its logistics business. It had sounded a cautious tone about the year ahead, citing an uncertain global economic outlook, high fuel costs and overcapacity in the shipping sector.
The entire shipping industry has been hit hard by the weak global economy, with a KPMG survey of shipping executives showing that most believed a recovery could be five years away.
In its latest annual report, NOL said its strategy for dealing with the challenges ahead is to modernise its fleet with large and efficient ships that cost less to operate. The group also plans to centralise its operations in lower-cost locations such as Chongqing in China, Malaysia's Kuala Lumpur and Costa Rica.
NOL ended 5.5 cents lower at $1.16.
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