Ocean carrier APL, a subsidiary of soon-to-be-acquired Neptune Orient Lines, said lower fuel costs and other cost savings were not enough to offset a reduction in volumes and base freight rates.
Neptune Orient Lines Limited, the parent company of container carrier APL, Tuesday reported a loss in the fourth quarter of 2015, albeit a smaller one than in same 2014 period, as both volumes and base freight rates declined.
For the full year, the company would also have reported a loss had it not been for the one-time gain it achieved on the sale of APL Logistics to Kintetsu World Express in 2015.
In the fourth quarter of 2015, NOL posted a net loss of $76 million versus a loss of $85 million in the fourth quarter of 2014. Revenues fell 43 percent to $1.28 billion in the fourth quarter of 2015 compared with $2.23 billion in the same 2014 period.
APL said average freight rates fell 22 percent amidst pressure from overcapacity in the industry. Volumes slid 12 percent in the quarter over the prior year, mainly due to a reduction in backhaul volumes out of the U.S. and the Persian Gulf, the company added.
For the full year in 2015, NOL had a profit of $707 million compared with a loss of $260 million in 2014. However, excluding proceeds from the sale of APL Logistics, the company would have had a loss of $181 million last year. Revenues stood at $6.02 billion in 2015, a 30 percent drop from the $8.62 billion recorded in 2014.
On Dec. 7, French ocean carrier CMA CGM announced an offer to acquire NOL for $1.30 per share, and NOL confirmed Tuesday that it expects anti-trust clearance of the deal by mid-2016.
“The last quarter of 2015 was particularly difficult. Container freight rates hit historical lows across major trade lanes as new vessel capacity came on stream amid softening market demand,” said NOL Group President and CEO Ng Yat Chung.
Although 7 percent of containerships are idle, “supply pressure continues to build up unabated due to high new build deliveries” in the first three quarters of 2015, he said. All told, 1.7 million TEUs of new capacity was delivered in 2015, with 80 percent on large vessels of 7,500 TEUs in capacity or more, according to Ng. Those ships, he noted, are meant for long-haul deployment.
Coupled with lackluster global economy, China’s softening growth, and ultra-low bunker prices, Ng said freight rates reached historic lows on several trade lanes in the fourth quarter of 2014.
He noted that over a two-year period between the beginning of 2014 and end of 2015, the Shanghai Containerized Freight Index fell 44 percent, and that this was mirrored by a 48 percent drop in spot freight rates from Asia to the U.S. West Coast, a 58 percent drop in spot rates from Shanghai to the Persian Gulf and a 45 percent drop on spot rates from Asia to Europe.
Ng said APL has reduced capacity as needed in order to maintain high utilization of its ships over the past three years — over 90 percent in each quarter.
The company saw revenue per 40-foot equivalent unit (FEU) drop to $1,699 in the fourth quarter compared with $2,179 per FEU a year earlier and $2,419 per FEU in the fourth quarter of 2012.
APL in the fourth quarter was able to achieve $358 million in cost savings and yield improvements from factors such as lower bunker prices, network optimization, expiration of charters, terminal and equipment savings, better cargo selection, yield management, and lower inland transportation expenses, the company said.
But Ng noted these positives were more than offset by the drop in freight rates and lower volumes — the company carried 643,000 FEUs in the fourth quarter of 2015 compared with 734,000 FEUs in the fourth quarter of 2014.
NOL said backhaul volumes in the transpacific and from the Persian Gulf were particularly weak during the quarter. The company also saw a big drop in its transatlantic business, moving just 48,000 FEUs in 2015, 63 percent fewer than the 131,000 FEUs it moved in 2014.
Ken Glenn, president of APL, said transpacific westbound trade was lackluster in 2015 due to the strong U.S. dollar, weak demand for raw materials used by manufacturers and the disruption at West Coast ports in early 2015 during and immediately after the fractious contract talks between employers and the International Longshore and Warehouse Union.
Glenn said APL’s headhaul volumes out of Asia in the fourth quarter of 2015 were fairly weak and there is no sign of a reversal of that in the early part of 2016, though he also said volumes prior to the Lunar New Year holiday this year were “decent.”
He noted that APL is “deep into” negotiating transpacific contracts for the coming year and that the company is doing “quite well on the volume side” and “getting a lot of positive feedback” from shippers about service integrity.
APL’s new express service from Shanghai to Los Angeles has been well received, said Glenn, adding that the Global Gateway South terminal in Los Angeles is “working extremely well.”
APL parent NOL reports smaller Q4 loss amid sale to CMA CGM
