-
Orient Overseas (International) Limited’s profit attributable to equity holders suffered an 80% drop to $1.129 billion in the first half of the year from US$5.664 billion year-on-year
-
Group revenues sank 59% to $4.54 billion vis-à-vis $11.061 billion in the first half of 2022
-
Inflation, higher interest rates on consumer spending, capacity issues and unclear economic conditions pose as challenges ahead
Orient Overseas (International) Limited (OOIL) reported an 80% fall in profits for the first half of 2023, according to interim results released recently.
Profit attributable to equity holders amounted to $1.129 billion from January to June 30, 2023 compared to a profit of $5.664 billion for the same period in 2022.
Revenues sank 59% to $4.54 billion from $11.061 billion.
The company said the “extraordinary” market conditions of the past two to three years have ended and added that the steady decline in freight rates, which began around the middle of last year, continued during the first half of 2023.
OOIL noted: “The fall from the great heights of 2020-2022 has certainly been spectacular in terms of both absolute dollar value and in terms of percentage, but this is simply a reflection of just how high the freight market had risen.”
It said freight rates are currently at pre-COVID-19 levels before global reactions to the pandemic created the surge in container shipping market conditions for the past years.
“Those market conditions were a combination of (1) better-than-expected demand and (2) severe congestion around the network that placed massive downward pressure on the effective level of capacity available to shipping customers, notwithstanding the deployment of additional capacity by shipping companies. Surprisingly resilient demand put together with reduced effective levels of supply drove freight rates up,” OOIL said.
It added that the inventory levels had not risen significantly from several importing economies but were higher than two or three years before.
OOIL said this made importers in the US and Australia, for example, “cautious” in ordering new goods resulting in reduced demand for container shipping.
As a result, compared to the same period in 2022, OOCL’s (Orient Overseas Container Line) total liner liftings for the first half of 2023 dropped by 1%, and total revenue decreased by 60%, resulting in a 60% decrease in revenue per TEU.
OOIL owns one of the world’s largest international integrated container transport businesses which trades under OOCL.
The company noted some successes even with increased consumer caution and slowing demand for products in the first semester.
Revenue for the ocean freight business is also back to “normal level of previous years”, with container volume increases seen as well.
It pointed to challenges ahead, even with more positive sentiment noted in recent weeks, particularly on routes to the US West Coast. “The conflicting positive and negative signals that have made forecasting so difficult in the past 12-24 months remain firmly in place,” OOIL explained.
“Certainly, the market is very far from being in disaster territory, and of course there are some indications that demand is improving and that shipping companies are behaving rationally in the face of fluctuating demand – all of this is reassuring.
Risks ahead
Inflation, higher interest rates and unclear economic outlook pose risks. “There is also the uncertainty of not knowing exactly what the net fleet growth, in terms of effective capacity, will be in the coming months and years. No one can predict with accuracy the extent to which, in any given period, capacity from new deliveries will outpace the loss of capacity driven by scrapping and speed reductions…”
It said that as of the time of release of financials, “ships are sailing full on the main long-haul tradelanes, and are forecast to continue to be fully loaded in the coming weeks. US West Coast rates have risen, as expected this time of year.
“Similarly, Asia Europe rates are currently holding and in some tradelanes increasing. Nonetheless, a cautious outlook is appropriate, given the challenges and uncertainties that abound.”
OOIL board of directors announced that the dividend for H1 2023 is approximately 50% of the profit attributable to equity holders at approximately $568 million, with an interim dividend of 0.69 per ordinary share and a special dividend of 0.17 per ordinary share.
RELATED READ: OOIL nets US$10B in 2022 on record liner profits
