RECORD LOSS AT NEPTUNE ORIENT LINES
Neptune Orient Lines, the Singapore-based parent company of APL Liner and APL Logistics, suffered a net group loss of $330 million in 2002, the deepest in the company’s history and one of the largest ever in the liner shipping industry.
The big loss for 2002 reflected heavy exceptional losses and write-offs, as well as poorer results from liner shipping and tankers.
The latest annual deficit compares with a net loss of $56 million in 2001. Its magnitude is bigger than that of the 1998 loss of S$438 million ($265 million) recorded by Neptune Orient Lines after the Asian economic crisis.
The announcement was made today after the Singapore stock market closed.
“While 2002 was tough for the industry as a whole, it was particularly tough for NOL,” said Cheng Wai Keung, group chairman. “We were geared for growth just as the tide of world trade ebbed, and we did not adjust quickly enough to the changed circumstances.”
The group confirmed that its 2002 loss includes $109 million in negative exceptional items, including $36 million in restructuring and severance costs, and $8 million of costs from the U.S. West Coast port labor disruption.
The Neptune Orient Lines group will reduce its workforce and cut administrative costs. The group has not finalized the number of job cuts concerned, but it has made provisions for the elimination of 200 to 350 positions, a spokesman for the group said. “This is part of an ongoing efficiency process,” the spokesman said, adding that 200 positions were eliminated in 2002.
At the operating level, the result before interest, tax and exceptional items for 2002 was a loss of $79 million, as compared to a profit of $77 million in 2001.
Most of the deterioration in the operating result came from APL Liner, which suffered a $73-million operating deficit, as compared to operating income of $19 million in 2001. APL’s liner shipping arm continued to contribute the largest proportion of the group’s revenue, at 74 percent of the total.
APL Logistics’ operating loss widened to $22 million in 2002, from $16 million the year before. Neptune Orient Lines’ tanker shipping business saw its operating income fall to $7 million last year, from $85 million in 2001.
Group revenue for the year decreased 2 percent, to $4.6 billion.
APL liner’s revenue decreased 5 percent over the same period to $3.4 billion, as freight rates fell. Container volume carried increased 6 percent to 3 million TEUs, but average freight rates decreased 9 percent, to $2,092 per FEU, from $2,304 per FEU in 2001.
Neptune Orient Lines said its transpacific and Asia/Europe trades widened their losses in 2002 because of “unsustainable rates.” Freight rates were down 14 percent in the transpacific and 10 percent in Asia/Europe. Latin America and transatlantic trades reported healthy volume growth of 20 percent and 25 percent, respectively, due to new services or upsizing of ship capacity.
“Despite rates recovering in the second half of 2002, freight rates are still below 2001 average,” a spokesman for Neptune Orient Lines said.
APL reduced its cost per FEU (excluding bunker costs) by 7 percent in 2002, but this was insufficient to compensate for the decline in freight rates.
This year, APL Liner aims to cut costs again by $150 million to $200 million. It also expects “steady volume growth with further improvements in freight rates.” The carrier has seen early indications that rates in the transpacific are increasing this year, but warned that uncertainty in the world economic and political environment may slow down recovery.
“The shipping industry will continue to face a difficult environment in fiscal year 2003,” Neptune Orient Lines said.
The Singapore-based group said APL Logistics’ revenue growth was lower than expected in 2002 due to weak economic conditions and slow recovery of the global economy. The logistics arm has sold its e-commerce operation, APL Direct Logistics, which lost money.
Neptune Orient Lines said it would focus on returning to profitability this year. It aims to move both APL Liner and APL Logistics back into the black this year.
Cheng said Neptune Orient Lines might sell its tanker shipping subsidiary American Eagle Tankers. “While clearly selling this unit is one option, we are keeping all our options open,” he said.
“We are also paring down our costs, managing our yield closely and working hard to recover rates,” he added. “During 2003, we are looking to further reduce general and administrative costs as well as operating costs, and this will include some headcount reduction”
Meanwhile, Neptune Orient Lines is looking for a new group chief executive officer, following the dismissal of Flemming Jacobs in January.
Neptune Orient Lines said it expects to continue to have a positive operating cash flow, despite the uncertainty caused by potential conflict in the Middle East.
“We are prepared for operational and financial contingencies that may develop as a result of a war in the Middle East,” a spokesman for Neptune Orient Lines said. “Depending on the extent of any conflict, such a war is likely to have either a neutral or slightly positive impact on the group’s finances as the U.S. government increases volumes shipped with carriers.”