CP sees clear sailing - for now

CP sees clear sailing - for now

Ray Miles expects the good times to last a while longer. The chief executive of CP Ships Ltd., which reported a 44 percent increase in fourth-quarter 2003 profit, says he expects "continuing improvement" during 2004.

CP Ships said unaudited operating income for the quarter reached US$49 million, up from $34 million before exceptional items in the fourth quarter of 2002. "It was the highest operating income since we went public (in 2001)," Miles said. Total revenue was $841 million, up 11.5 percent from a year earlier. Fourth-quarter operating income was 11.4 percent higher than the $44 million recorded in the third quarter of 2003, and operating revenue rose 2.9 percent.

For 2003 overall, operating income before exceptional items was $131 million, compared with $83 million in 2002. Total revenue for the year climbed to $3.136 billion, up 16.7 percent.

"We had a very good quarter, and I'm very happy with the results," Miles told analysts in London, where the company is based. "With record operating income in the fourth quarter and income up nearly 60 percent for the full year, and record volume and sales revenue for both the quarter and the year, we consider these to be outstanding results."

Mark McVicar, shipping analyst with Dresdner Kleinwort Wasserstein in London, said the results were "fully consistent with the upswing we're seeing in the shipping sector and reflect Ray Miles' conservative approach to management. Freight rates were high enough to offset the increase in costs and exchange rate pressures, confirming the bullish outlook for 2004. The supply-demand balance going forward looks favorable."

Miles expects 2004 to be the peak in rate improvements because "looming overcapacity" may cause rates to flatten in 2005 and 2006. "The question is: When does the overcapacity cycle begin?" he said. Miles noted, though, that forecasts have been wrong in the past because demand has been significantly higher than anyone predicted. Demand is a much more important determinant of rates than supply, he said. The supply-demand balance should continue to favor container lines through 2004 and into 2005, he predicted.

Miles said increasing charter rates, stevedoring and trucking costs are expected to be offset this year by continuing strong volume, further rate improvements and the company's own cost-reduction program.

"The start has already been very positive, and we therefore expect that earnings in 2004 will be higher than in 2003," he said. He said the improvement should be "more than trivial."

Since the mid-1990s, CP Ships has combined acquisitions and internal growth to develop into a global carrier, operating under the brand names of Canada Maritime, Cast, Lykes Lines, Contship Containerlines, Italia Line, TMM Lines and ANZDL.

Miles expressed satisfaction with the way CP Ships was growing in Asia markets. He said he expects the company's Asian-American trade to improve in 2002, but said the Indian trade, where the company uses charter ships, is "more difficult to predict." CP Ships is planning changes in its India services to adjust capacity and improve returns.

CP Ships' container volume rose to a record 569,000 TEUs in the fourth quarter, up 3 percent from a year earlier. Full-year container volume also was a record, rising 9 percent to 2.2 million TEUs. The growth reflected improved market conditions in most trade lanes, especially 12 percent growth in volume in the trans-Atlantic market and 40 percent on most Asian markets. Volumes on eastbound routes remain strong because of the decline of the dollar against the euro. Miles termed the 2004 outlook "quite firm" for volume on Atlantic routes, where CP Ships earned 62.5 percent of its operating income last year.

Although average freight rates in the fourth quarter were down 1 percent from the third quarter, they were 8 percent higher than a year earlier. Average freight rates for all of 2003 were up 7 percent. The weakening average rates from the third quarter reflected an 8 percent drop in rates in the Asian trades, where downward pressure was evident on routes to and from North America. Rates were up 6 percent on Australasian routes and 3 percent on Latin America routes.