Comparison Offers Clues on Container Ship Operation Profitability

MarineLink.com
Monday, March 31, 2014
Container ship bows: File photo CCL

The container industry is a notoriously difficult sector to make any money in, but a few major lines have managed to avoid the red ink while others have toiled. Drewry Maritime Equity Research compares the performances of Asian companies OOIL and NOL for clues behind the varying results and the future direction that the most successful are likely to head. Excerpts follow:

The last five years have been a stormy period for the global container shipping industry and have affected all big and small players alike. The industry’s boom period of 2003-2008 saw low debt, ample liquidity and healthy balance sheets. That now seems a distant memory as the last few years and in particular 2011-13 saw the industry’s profitability suffer negative cash flows straining industry balance sheets and debt-to-equity ratios spiralling out of control.

Drewry estimates that the industry has collectively made an operating loss of around $2.5 billion in the past three years with the last couple only providing a tiny profit. The outlook for 2014 is not much better. Within those aggregate results are considerable gaps between the best and worst performing lines.

Two closely matched companies that have experienced contrasting results are Singapore-based NOL, parent of APL, and Hong Kong’s OOIL, owners of OOCL. NOL has been part of the struggling club for much of the past half-decade whereas OOIL has managed to keep its financial health in much better condition and managed to ride the cycle better than most.

Our analysis suggests the difference in costs between the two is the prime differentiator which translates into higher yields for the former and poor returns for the latter.

It pays to have costs on your side
Yield maximization and cost optimization go hand in hand. Even as most carriers focus on cost optimization while planning their operations, there is a significant cost difference at play amongst different vessel operators that leads to different results. OOIL’s container arm, OOCL has a low cost base which has helped it post industry leading margins over the previous years.

Compared to this, NOL’s liner division has had a rigid cost structure, in part a legacy of company’s acquisition of APL, forcing the company to post consecutive losses. Our analysis suggests the difference in costs between the two is the prime differentiator which translates into higher yields for the former and poor returns for the latter.

A healthy balance sheet slashes financial risk and lowers steady debt service outflows
During this period, NOL has seen its balance sheet strained rapidly with net gearing increasing from a meagre 11.7% at the start of 2011 to ~182% by end-2013.

OOIL astutely shielded itself from the burden of high loan repayments with a well-timed asset sale. The company sold its property business at an opportune time in 2010, helping to buffer its cash balances and wither the low cycle environment comfortably.

OOIL fleet mix better suited to its needs
OOIL operates fewer vessels compared to NOL. Its vessels are skewed towards smaller size segments, and have an average age of eight years. The fleet is evenly distributed between owned and chartered vessels giving it necessary flexibility in better managing its operations. OOIL derives more than half the volumes from Intra Asia and close to one fourth from Transpacific.  We believe OOIL’s fleet is ideally spread between different vessel size segments to cater to the diverse needs of the trades it operates upon.

Drewry's View
OOIL will continue to post favourable results in 2014, while NOL is moving ahead in that direction by taking the right steps to reduce its cost base, gearing levels and restructure its fleet.
 
Source: Drewry Container Shipping Insight
http://ciw.drewry.co.uk/
 

 

Maritime Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter April 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Hanjin Shipping May Get OK for Restructuring

South Korea’s largest container operator by capacity Hanjin Shipping's creditors are expected to approve a corporate rehabilitation program for the struggling container line,

Allcargo Groups Subsidiaries as ECU Worldwide

ECU Line, Econocaribe and China Consolidators undergoes rebranding to build a Global Brand Connect   India’s integrated logistics solution provider Allcargo Logistics

Damen Opens US Office

Damen Shipyards Group has announced the opening of a new branch office in Houston, Texas. This expansion, under the name of Damen North America, meets the increasing

Finance

Crowley Acquires Ace Fuels Assets in Anchorage

Anchorage-based Crowley Fuels yesterday completed an asset acquisition of the aviation fuels business of Ace Fuels, LLC, a fixed base operator (FBO) headquartered

BAE Systems Bags USN Award for Submarine Propulsors

BAE Systems has received a $72 million contract from the U.S. Navy to produce and deliver propulsor systems for Block IV Virginia-class (SSN 774) submarines. The

India Seeks Stake in Iran LNG Terminal

Indian Petroleum Minister Minister Dharmendra Pradhan says India has expressed interest in setting up an LNG terminal at Chahabar port in Iran to ship back home natural gas from Persian Gulf nation,

Container Ships

Allcargo Groups Subsidiaries as ECU Worldwide

ECU Line, Econocaribe and China Consolidators undergoes rebranding to build a Global Brand Connect   India’s integrated logistics solution provider Allcargo Logistics

USCG Sets 2nd Round of Hearings for El Faro

The U.S. Coast Guard will conduct a second round of public hearings May 16-27 for the Marine Board of Investigation into the loss of the U.S.-flagged cargo ship El Caro, and its 33 crewmembers.

Asia-N.Europe Box Rates Jump 170 pct

Shipping freight rates for transporting containers from ports in Asia to Northern Europe jumped 170 percent to $732 per 20-foot container (TEU) in the week ended on Friday,

Consulting

ICS Criticises 'Prestige’ Judgement by Spanish Court

At a meeting of the International Oil Pollution Compensation Funds (IOPCF) this week, the International Chamber of Shipping (ICS) has strongly criticised the judgement

V.Ships Wins Fortress Deal

V.Ships Offshore, part of V.Group has been awarded a ship management contract by Fortress Transportation and Infrastructure Investors LLC to provide full technical

Maersk Cuts Landing Certificate Issuance Time

* Maersk Line will introduce a simplified process for obtaining the Landing Certificates from May 1st , 2016   * Maersk line waives off the  Landing Certificate fee of INR 1000 Mumbai,

 
 
Maritime Contracts Maritime Security Maritime Standards Naval Architecture Navigation Offshore Oil Pipelines Pod Propulsion Ship Repair Shipbuilding / Vessel Construction
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1070 sec (9 req/sec)