OVER-CAPACITY, LOWER RATES HIT P&O NEDLLOYD’S 3Q RESULTS
P&O Nedlloyd Container Line Ltd. reported a 73-percent fall in net profit for the third quarter of the year, to $16 million, as its average revenue per TEU dropped by 8 percent and vessel load factors fell by 5 percent.
The profit for the latest quarter compares with a net profit of $60 million in the third quarter of 2000. Average revenue per TEU decreased to $1,275, from $1,385 in the third quarter of last year.
The operating profit for the third quarter was $30 million, down 60 percent when compared to the $45-million result in the equivalent period in 2000.
P&O Nedlloyd reported a 6-percent rise in container carryings for the latest quarter, to 834,200 TEUs, and a total revenue of $1.1 billion, down 2 percent from the third quarter of 2000.
“Lower rates of economic growth and increases in new capacity are continuing to have a negative impact,” a spokesman for P&O Nedlloyd said.
Despite the profit fall in the third quarter, P&O Nedlloyd said that it has cut unit costs by 4 percent compared to the third quarter of 2000.
“This reflects the good progress being made by the company in its drive to reduce costs, as well as favorable fuel prices and volume growth,” it said. P&O Nedlloyd expects to have shaved more than $182 million in annual costs by the end of this year, and is planning another round of cost reductions worth $200 million a year by the end of 2003.
“Cost reduction is really the name of the game going forward,” said Haddo Meijer, chairman of the executive committee of P&O Nedlloyd.
The carrier said that rates on the Europe/Asia trade have deteriorated substantially and are “nearing historic lows.” The Europe/Asia trade’s Far East Freight Conference, to which P&O Nedlloyd belongs, is now attempting to restore rates to higher levels.
For the first nine months of the year, operating profit at P&O Nedlloyd increased marginally, to $107 million, from $105 million in the equivalent period last year. Pre-tax profit rose to $66 million, from $59 million, and revenue went up to $3.1 billion, from $3 billion.
P&O Nedloyd warned that next year will be a difficult year for the container shipping sector.
The Anglo-Dutch carrier expressed concerns about the uncertain trade outlook, the slowdown in growth and the issue of vessel over-capacity.
P&O Nedlloyd said that has taken measures within the Grand Alliance to reduce capacity in the transpacific trade, by taking out the SCX loop, and in the Asia/Europe trade. Details of the Asia/Europe cutback are unknown.
Robert Woods, group managing director of P&O Nedlloyd, said that the Grand Alliance will soon announce the termination of one of its Asia/Europe services.
Reducing over-capacity will reduce costs at P&O Nedlloyd, he said.
“It (also) helps to bring back a sense of equilibrium between supply and demand, which has a knock-on effect on pricing.”
Containership over-capacity is currently estimated at about 20 percent in the Asia/Europe trade and 30 percent in the transpacific.
The carrier warned that overall demand in the industry continues to grow but at a much slower rate than earlier in the year.
“Significant new tonnage is due to enter the market during the remainder of 2001 and through 2002, the impact of which will only be partly offset by capacity lay-ups by the major lines,” it said. “This is continuing to exert downward pressure on freight rates.”
In a separate development, Royal Nedlloyd group chairman Leo Berndsen denied that the group is discussing a merger or takeover between P&O Nedlloyd and Neptune Orient Lines, which also recently announced a sharp fall in profitability. Singapore-based Neptune Orient Lines, the shipping and logistics group that owns APL Liner and APL Logistics, suffered a 78-percent dive in group net profit for the first half of the year, to $11 million, and warned that it may incur a deficit for the year.