OOCL swings to profit on higher rates, capacity restraint

OOCL swings to profit on higher rates, capacity restraint

OOCL posted an improved financial picture for the first half of 2019 over the same period in 2018, in part due to higher freight rates. Photo credit: Shutterstock.com.

Stronger freight rates swung the parent company of OOCL to a $139 million profit in the first half of the year as the carrier said it has no plans to expand capacity and noted broader industry restraint despite economic uncertainty. 

Revenue increased 6.5 percent revenue to $3.3 billion as cargo volume rose 3.2 percent to 3.37 million container liftings, OOIL, the parent of OOCL, said in an earnings report Monday. The carrier had reported a $10 million loss in the first half of 2018.

“Market growth did indeed slow down in some trade lanes,” the carrier said in the earnings release. “But in many cases this slowdown in volume growth was outpaced by an improvement in the freight rates.”

OOIL’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 12.6 percent was about the same as the 12.2 percent reported last week by Zim Integrated Shipping Services. Both were lower than Maersk Line’s EBITDA margin of 14.9 percent and Hapag-Lloyd’s 14.7 percent reported earlier in August.

Improving picture

OOIL’s earnings statement depicted the carrier on more steady financial footing than a year ago, shortly after the company was acquired by Cosco Shipping Holdings in June 2018. 

OOIL reported in April that OOCL revenue increased 5.9 percent in the first quarter, to $1.38 billion, over the same period in 2018, as liftings increased 1.6 percent to 1.58 million TEU. That release provided no figure for the quarterly profit or loss.

In the second quarter, OOCL enjoyed “a pattern of steady progress in results throughout the second half of 2018 that continued through the first half of 2019,” despite the uncertain market and slowing market demand, the carrier said.

OOCL said the carrier had neither received any new vessels nor ordered any in the first half of 2019. The carrier took ownership of six 21,413 TEU vessels in 2017-18. In the second quarter of 2019, the carrier’s loadable capacity ticked up 4.3 percent to 4.1 million TEU, compared with the same period in 2018. But it’s operating capacity remained about the same as in the second quarter a year ago, the company reported.

Oil price volatility

The carrier also is facing pressure from oil prices, as the industry prepares for price volatility due to the International Maritime Organization (IMO) 2020 regulations, which require ocean carriers to reduce sulfur emissions and are expected to create fuel price volatility. 

OOCL said it faced a challenge from the rise in fuel oil and diesel prices, which pushed up bunker costs 3 percent in the first half of 2019. The average cost of bunker recorded by OOCL in the first half of 2019 was $441 per ton compared with $403 per ton for the corresponding period in 2018.

OOCL said its “Dual Brand” strategy, pursued since the merger with Cosco Holdings in June 2018, is bearing fruit, and has created customer value in the sales and customer service departments. “We have also achieved significant synergy benefits through network planning, equipment pooling, procurement, and IT,” the company said.

The contribution of several sectors of OOIL to overall company revenue in the first half declined compared with the same period in 2018, the carrier said. The contribution from OOCL Logistics fell 2.1 percent, from international supply chain management service by 2.9 percent, and from import/export services by 4.5 percent. The contribution from the carrier’s depot business fell 21.5 percent due to tariff rate reduction.

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley1.