RCL blames losses on intra-Asia overcapacity, reduced feeder demand

RCL blames losses on intra-Asia overcapacity, reduced feeder demand

Regional Container Lines blamed losses in the second quarter on overcapacity in the intra-Asia market that pulled down rates and declining demand for feeder services.

RCL has cut its losses to 183 million Thai baht ($5.2 million) compared with 243 million baht in the first quarter, and although improved, the performance fell short of the second quarter of 2015, when RCL posted a profit of 55 million. Rates fell nearly 3 percent compared with the previous quarter, though volumes rose 9 percent to 258,846 twenty-foot-equivalent units.

"Due to the increasing spillover of tonnage into intra-Asia market and insufficient demand, freight rate decreased 16.2 percent year-over-year," RCL said.

However, feeder volumes plunged 15 percent year-over-year to 175,331 TEUs, resulting in a 2 percent decline in aggregate volume that amounted to 434,177 TEUs. Transshipment ports in Southeast Asia face headwinds from major east-west container lines’ adding direct calls at more ports as they seek to soak up excess capacity, reducing the demand for intra-Asia services

A 13 percent decline in turnover to 2.6 billion baht was somewhat offset by a 5 percent fall in operational costs. RCL also reported a gain of 26 million baht from favorable exchange rates and earned another 4 million baht from the disposal of old containers.

Thailand’s RCL, Hong Kong’s Orient Overseas Container Line and Gold Star Line and Taiwan’s Yang Ming Line recently teamed up to link China and Vietnam through two different loops.

Intra-Asia trade growth — albeit at a slower pace than in previous years but still generally healthier than the major three east-west trades — has spurred regional container lines to add services. Meanwhile, major container lines see an opportunity to shore up their weaker volume on the major trades via intra-Asia services. Hyundai Merchant Marine has said the trade will be a focus as it tries to return to profitability.

RCL believes growth in Association of Southeast Asian Nations member states will help it in the future and that supply and demand in the region will begin to come into balance.

"By the end of 2016 we could see containerized trade growth outpace expansion in the container ship fleet," RCL said.

Contact Ramadas Rao at raoramadas1@gmail.com.

A version of this story originally appeared on IHS Fairplay, a sister product of JOC.com within IHS Markit.