Overcapacity Likely to Persist in Container Shipping Market

“The industry saw a disappointing first half and a more encouraging second half in 2013. Moving into 2014, there has been cargo volume increase and a generally more positive sentiment than last year. In total, it is expected that the container transportation industry posted improved results for the first half of 2014,” said Chairman of OOIL, Mr. C C Tung, commenting on market situation in container transport business’ half year results.

According to Tung, such improvement, however, is likely to be capped given the large newbuilding orderbook and the anticipated next round of newbuildings that will likely materialise over the next twelve months.

Lifting of the Hong Kong-based container shipping and logistics service company, Orient Overseas Container Line (OOCL), for the first half year increased 10% and load factor increased by 5 points thereby generating an overall revenue increase of 4% over the same period last year.

While freight rates across various trade lanes had a mixed performance against first half last year, additional liftings made up the revenue shortfall. The first six months of 2014 saw a robust growth in cargo demand in the major European and American markets.

OOCL achieved 8% reduction in bunker cost against a 3% increase in capacity and 10% increase in lifting.

During the first six months of 2014, OOCL took delivery of two newbuildings, both of which are 13,208 TEU Mega Class vessels.

Tung said, “We expect to take delivery of another four 8,888 TEU SX Class vessels in 2015. These newbuildings represent the end of our last round of newbuilding orders.”

Mr. Tung commented on the outlook in the container shipping marketby saying, “The industry will continue to face overcapacity in the coming years. Despite the gradual recoveries of the developed economies, demand growth is not expected to return to the pre Global Financial Crisis level over the short to medium term.

At the same time, gross static supply growth remains high with the orderbook-as-a-percentage-of-fleet ratio at 9.3% and 9.8% for 2014 and 2015 respectively. Unless bunker prices can decline to a more reasonable level, the drive for scale and fuel efficiency will translate into continued newbuilding projects. As a result, the challenge of overcapacity will likely persist over the short to medium term.

“Our investments in a new port facility in North America and IT capabilities will ensure our competitive edge in the industry going forward. The Group is building its logistics business and expect meaningful contribution to the Group over the medium to long term.”

Mr. Tung concluded that, “Given the market conditions, the first half of 2014 was satisfactory for OOIL. During the second half of the year, the Group will redouble its efforts in its focus on cost efficiency and operating margin. As the global economy gradually recovers, there is expectation that the container transport industry will find itself in a more positive operating environment.”

OOIL owns one of the world’s largest international integrated container transport businesses which trades under the name OOCL.

[mappress]
Press Release, August 11, 2014