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 Reporter May 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

CMA-CGM to Call Port of Baltimore

International container shipping company CMA-CGM of France announced that it will begin service within the next couple of weeks to the Helen Delich Bentley Port of Baltimore.

Hapag-Lloyd Expands Feeder Network in Scandinavia

Baltic Express Service (BAX) to include Oslo / Two weekly departures from Gothenburg and Helsingborg in SDX and GTE / Connection via Hamburg and Bremerhaven to

Mercury Marine Begins HQ Expansion

Mercury Marine announces 45,000 square foot EDP parts expansion to Fond du Lac global headquarters   Mercury Marine will add a 45,000 square foot expansion to

Finance

AAPA Applauds Senate Passage of Trade Promotion Legislation

The American Association of Port Authorities (AAPA) applauded Senate passage over the past weekend of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA-2015),

Port of Duluth Intermodal Project Underway

The U.S. Department of Transportation’s Maritime Administrator, Chip Jaenichen, today joined Senators Amy Klobuchar and Al Franken, Congressman Rick Nolan, Duluth Mayor Don Ness,

Chile Exporters Fret as Customs Strike Continues

A customs strike in Chile that began last week has started to affect exports and imports, although miners in the top copper producer said this week they have not yet been significantly impacted.

Container Ships

CMA-CGM to Call Port of Baltimore

International container shipping company CMA-CGM of France announced that it will begin service within the next couple of weeks to the Helen Delich Bentley Port of Baltimore.

Construction Starts on Crowley’s 2nd LNG ConRo Ship

Construction begins on Crowley’s second Commitment Class, LNG-powered ConRo ship for use in the Puerto Rico trade   Shipbuilder VT Halter Marine, Inc. has officially

Wärtsilä wins BWMS Order for 3 Vessels

Wärtsilä has received another important order for its Ballast Water Management Systems (BWMS). Three new container ships being built for a major European shipping

Consulting

Wärtsilä wins BWMS Order for 3 Vessels

Wärtsilä has received another important order for its Ballast Water Management Systems (BWMS). Three new container ships being built for a major European shipping

Volume Up in Dutch Maritime Technology Sector

The Dutch maritime technology sector has had a good year. Turnover increased by 17%, from EUR 6.4 billion in 2013 to EUR 7.5 billion in 2014. The sector employed 31,680 FTEs, up from 29,361 in 2013.

Carrier Schedule Reliability Improves in April

Transport consultant Drewry’s Carrier Performance Insight (CPI) for April records 67.6%, up by 4.1 percentage improvement on the previous month in the aggregate

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Navigation Pipelines Salvage Ship Electronics Ship Repair Shipbuilding / Vessel Construction Sonar Winch
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: 0.1821 sec (5 req/sec)