CP Ships increases first-quarter income despite soaring charter costs

CP Ships increases first-quarter income despite soaring charter costs

   CP Ships turned a $22-million net loss in the first quarter of last year into a profit of $8 million in this year’s first quarter, despite soaring vessel charter and other operating expenses that added 7 percent to unit costs per TEU.

   The latest results were helped by the fact that $10 million of exceptional costs booked in the first quarter of 2003 did not reoccur in the latest quarter, by higher average freight rates and by the end of operating losses in the company’s former Asia/Europe services.

   Operating costs jumped 16 percent in the first quarter to $799 million from $689 million in the same quarter of 2003. The Canadian-registered container shipping group said the adverse impact of higher ship charter costs was about $10 million in the latest quarter.

   Other operational costs, mainly inland transport and terminal handling, were also higher. Fuel costs were down $5 million in the quarter mainly due to lower prices. The recent rail congestion in Western Canada and the now resolved tugboat labor dispute in Canadian ports had “no material impact” on the first quarter, the company said.

   “Charter renewals for 24 ships at more expensive rates during 2004 are estimated to have a $35-million adverse impact on full year 2004 operating income,” CP Ships warned. “This is in addition to the estimated incremental cost of $17 million in 2004 for 26 charter renewals last year.”

   CP Ships said it reduced its fleet from 80 ships on Dec. 31 to 76 ships on March 31 “due mainly to the restructuring of services to offset the adverse impact of higher ship charter costs.”

   The company increased its revenue 19 percent in the first quarter to $815 million, as container carryings rose 9 percent to 562,000 TEUs. Average freight rates were 8 percent higher from the same quarter last year, although down 2 percent from the fourth quarter of 2003.

   With higher revenues absorbing the increase in costs, the company’s operating result before exceptional items was a profit of $16 million, compared to a loss of $3 million in the first quarter of 2003.

   “With record volume and revenue for the seasonally weak first quarter broadly across all market segments, this is our best first quarter operating profit since becoming public in October 2001,” said Ray Miles, chairman of CP Ships.

   The company said it has ended losses in its Asian services, where it operated money-losing Asia/Europe services until their withdrawal from the trade in April 2003.

   In its core transatlantic trade, operating income narrowed to $1 million in the latest quarter from $4 million a year ago. CP Ships reported stronger transatlantic volume and higher freight rates, but also higher operating costs. Volume was up 8 percent with moderate import growth into North America and strong growth in exports to Europe. “Freight rates, although 10 percent higher than first quarter 2003, were down 4 percent from fourth quarter, due mainly to higher volume of lower margin North American export cargo,” CP Ships said.

   In March, CP Ships added a service connecting Asian ports to Vancouver and Oakland, complementing an existing Asia/Vancouver service.

   The company aims to lower costs by $35 million on an annualized basis this year, most of which is expected to contribute to the 2004 result.