Home » Breaking News, Maritime » OOIL net profit down 38% from lower freight rates on east-west trade

Orient Overseas (International) Limited (OOIL) announced a profit after tax of US$175 million for the first six months ended June 30, 2011, down $105.3 million or 38 percent from the same period last year.

The Hong Kong-based OOIL attributed the profit contraction to an overcapacity that has steadily pushed freight rates on the east-west trade downward.

“Following the record result for our container transportation and logistics business in 2010, trading conditions in the first half of the year have been difficult and the outlook for the full year is disappointing,” said C.C. Tung, chairman of OOIL, in a press release dated August 8.

“Demand levels remain reasonable as reflected in an overall year-on-year increase in liftings, but with the rate of new capacity introduction having outpaced demand growth, freight rates on many east-west trades have steadily deteriorated since last year,” he added.

The freight rate fall was particularly noticeable on the Asia-Europe trades, and has happened “despite the need for improved revenues to offset the significant increases in the price of bunker and other energy-related costs that have occurred this year,” Tung said.

“The container shipping industry remains extremely competitive with a fine balance between supply and demand that sees rates fall rapidly when new capacity is introduced in an injudicious manner,” said Tung.“Improving services for customers so as to attract additional volume and to avoid profitability being unduly sacrificed, is essential given the ongoing cost pressures that all operators face.”

For OOCL, the company’s shipping line, total liftings for the half year were 9.4 percent higher than in the first six months of 2010, while freight revenue per TEU was 0.9 percent lower, primarily reflecting the impact of the decline in freight rates on the Asia-Europe trade.

On the outlook in container shipping, Tung said, “The late introduction of peak season surcharges on the Trans-Pacific trade, despite reasonable levels of demand, is an indicator of the difficult trading conditions expected for the remainder of the year. Capacity deployment issues in the industry are likely to continue in the near term, and the traditional peak season lift in demand may give only limited improvement, at best, in average freight rates over the remainder of the year.”

He expressed uncertainty over how strong consumer demand in the United States will be over the Thanksgiving and Christmas retail selling seasons this year following the recent termination of the U.S. government’s fiscal and monetary stimulus programs.

“While the economies of northern European countries are performing well, the support needed for those members of the Euro-zone with excessive levels of sovereign debt may constrain consumer demand,” said Tung. “Overall, this will make for continued difficult trading conditions in the second half of the year with relief from high oil prices and increased energy-related costs not expected.”

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