High fuel costs, low freight rates conspire to create tough 1Q
NOL Group, the Singapore-based container shipping and logistics company, reported a first quarter 2012 net loss of 254 million compared to a net loss of $10 million in the same period last year. NOL said high fuel costs and low freight rates in container shipping affected first quarter 2012 performance.
NOL said that in the first quarter of 2012 it achieved about $100 million of cost savings under its ongoing programme and it is on track to achieve $500 million worth of savings for 2012. The savings were primarily through reduced fuel consumption and improved operational costs.
NOL is also undertaking an organizational restructuring that will result in an additional annual savings of about $70 million from 2013 onwards. The company said that its organization structure around the world will be streamlined to shorten decision cycles and respond better to market changes and evolving customer needs.
NOL’s supply chain management business, APL Logistics, reported a 7% increase in first quarter revenue. Core EBIT (Earnings Before Interest and Taxes) in the logistics business was $13 million.
“There were positive signs in the first quarter – the freight rate increases in March and growth in the Logistics business,” said NOL Group CEO Ng Yat Chung. “But we must continue to aggressively manage our operating costs, and streamline our organization for greater efficiency.”
APL, NOL’s liner shipping business, reported first quarter 2012 revenue of $2 billion, down 4% from a year ago. Revenue per FEU (forty-foot equivalent unit) declined 7%,due mostly to lower rates. Bunker fuel price increased from US$523/metric ton in 1Q 2011 to US$684/metric ton in 1Q2012. APL reduced fuel consumption by 75,000 metric tons even though overall cargo volume increased 4% in the first quarter. “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.”
APL Logistics reported first quarter 2012 revenue of US$394 million. Contract Logistics revenue increased 15% due mostly to strong demand for rail and land-based services from automotive customers. APL Logistics’ Core EBIT declined 38% from the first quarter of 2011 due to higher operating and technology costs related to growth initiatives. “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.”
Recent General Rate Increases have resulted in improved freight rates since March. However, the global economic outlook remains uncertain and the container shipping industry continues to face high fuel costs and overcapacity. If conditions for rates and fuel costs do not improve, the Group's financial performance will remain weak.