C.C. Tung, chairman of OOIL, said the industry faced difficult market conditions in the first half of 2016, and the second half of the year will be difficult if deployed capacity continues to substantially exceed demand.
Orient Overseas (International) Ltd. (OOIL), the parent company of the container shipping company Orient Overseas Container Line (OOCL), said Monday it had a loss of $57 million in the first half of 2016 compared with a profit of $239 million in the first half of 2015.
Revenues slipped to $2.56 million in the first half of 2016 from the $3.04 billion in the first half of 2015.
Container volumes jumped 5.5 percent year-over-year to 2.89 million TEUs.
The company did not provide detailed second quarter financial figures but said container shipping revenues totaled around $1.1 billion in the second quarter of 2016, 16.6 percent below what they stood at in the second quarter of 2015, despite container volumes rising 6.6 percent year-over-year to 1.5 million TEUs.
“Market conditions in the first six months of 2016 have been difficult for the industry,” said C.C. Tung, chairman of the Hong Kong-based company. “Weak economic growth in many key economies has constrained consumer demand, and global uncertainty seems to have given rise to some level of slowdown in corporate and government investment. Consumer demand and investment are the key drivers of demand in our industry, and in this context it is no great surprise that cargo volume growth has been uninspiring.”
Two developments of note in the first half of this year for OOCL were the opening of phase one of its highly automated Long Beach Container Terminal and the announcement that next April it will become a member of the OCEAN Alliance, a space sharing agreement it is entering with CMA CGM, China COSCO Shipping and Evergreen Line.
Tung said, “The recent UK referendum might also lead to some further delay in investment processes in the short term, at least in Europe, especially if negotiations between the UK and EU on their future trading relationship prove to be protracted. In addition, violence in Europe and geopolitical conditions in the Middle East and South China Sea have injected another layer of cautiousness to sustained corporate activities and investment.”
In addition, Tung noted how the container shipping industry continues to face a supply and demand imbalance. “A combination of weak global growth on the demand side and excessive shipping capacity growth, exasperated by the industry’s relentless pursuit for scale and efficiency in recent years, has compounded the overcapacity,” Tung said. “The result is a weak freight market where rates fell to levels that at times failed to cover voyage costs in selected trade lanes.
“Although fuel costs have risen considerably since the remarkable lows of the first few months of 2016, they remain far lower than in recent years, and provide some element of cushion against the unsustainably low freight rates that have been seen in some trades”, Tung added.
OOCL said its average price of bunker fuel in the first half of 2016 stood at $186 per ton compared with $352 per ton in the first half of 2015.
The company did not take any delivery of new ships or order any new ships in the first half of 2016. However, the company did note that six 20,000-TEU class new-build vessels it ordered from Samsung Heavy Industries Co. Ltd. in South Korea are expected to be completed by the end of 2017.
Looking ahead, Tung said, “notwithstanding the fact that there have been some tonnage withdrawals and pockets of volume growth in selected trade lanes, if deployed capacity continues to be substantially in excess of demand, the second half of 2016 will be challenging and difficult.
“The industry continues to face a supply and demand imbalance,” he said. “While the orderbook as a percentage of existing fleet is anticipated to drop to 6.7 percent and 5.5 percent, respectively, in 2017 and 2018, the challenge for the next half decade is on the demand side. The world economy seems uninspiring at best. The US may have passed its most difficult period in this cycle, and China will likely avoid a hard landing. Even if Europe finds its footing in the aftermath of Brexit, the world may very well need to adjust to a new normal where unexciting growth and a low interest environment become the norm, at least for a half decade.”
He also cautioned that “the polarization of domestic politics, the rise of populism and the tendency towards ‘turning inwards’ for many nations may also translate into a slowdown in the velocity of globalization.”
OOCL parent posts $57m loss in first half 2016
