Singapore-based NOL, the parent company of the container liner company APL, said it had a loss of $76 million in 2013, smaller than the $412 million loss it experienced in 2012. Revenue was $8.83 billion in 2013, 7 percent less than the $9.51 billion recorded in 2012.
In the fourth quarter of 2013, NOL had a loss of $137 million, compared to a loss of $91 million in the fourth quarter of 2012. Revenue was $2.33 billion in the fourth quarter of 2013, compared to $2.5 billion in the fourth quarter of 2012.
“Delivery of new tonnage in 2013 added to the over-capacity in the container shipping industry. Overall freight rates declined through the year, with the fourth quarter recording one of the lowest levels the industry has seen in the last three years,” said NOL Group Chief Executive Officer Ng Yat Chung.
“Despite the tough environment, the group put in a better financial performance. We started the year with an improved cost base which we continued to build on. In particular, our liner business strengthened its operating results, delivering a significant 72-percent improvement in Core EBITDA," he continued.
APL, NOL’s container-shipping business, had revenue of $7.3 billion in 2013, 9-percent less than in 2012.
The company said this was a result of capacity management and a sharp fall in freight rates. The company moved about 2,946,000 40-foot equivalent units (FEU) in 2013, 2- percent fewer than in 2012.
“Our revenue was hard hit by a drastic drop in freight rates. We had also experienced one of the weakest third and fourth quarters in recent years,” said APL President Kenneth Glenn. “APL’s improved cost structure will sustain our long-term growth, evidenced by our improving operating results.” He noted that the core earnings result before interest and tax in 2013 was a negative $231 million in 2013, compare to a negative $250 million EBIT in 2012.
Glenn said APL is “sharpening our competitive edge through the adoption of a function-led management approach to speed up decision-making and improve market responsiveness.”
In 2013, APL said its headhaul utilization stayed above 90 percent. Its average revenue per FEU dropped 8 percent, while operational efficiencies and lower bunker prices helped reduce cost of sales per FEU by 8 percent.
Glenn said the company's liner cost of sales dropped by about $245 per FEU from the beginning of 2012 and end of 2013.
Glenn said he saw the gap narrowing between supply and demand in container shipping in 2014. He said APL estimates that in 2013, capacity increased close to 6 percent, while the market grew 3.5-percent globally. In 2014, he said the company expects capacity growth will moderate to about 5.5 percent on an annualized basis with deferrals of orders and accelerated rates of scrapping, and about 4 percent of the fleet will idle globally. He expects demand for container shipping will accelerate to about 4.5 percent globally.
He said volumes in the early part of 2014 have been higher in the transpacific, intra-Asia and Asia-Europe trade lanes and some increase in freight rates.
By the end of 2013, APL had taken delivery of 24 out of 34 new vessels. APL said it expects to reap even greater operational efficiencies with the arrival of the remaining 10 fuel-efficient vessels in 2014, which will replace 20 smaller vessels on expiring charters.
During a telephone call on Thursday, Glenn said NOL expected to get increases in freight rates when annual contracts are negotiated this year.
He said negotiations on contacts between Asia and North America, which typically run from May 1 to April 30 are just beginning, while contract talks on Asia to Europe cargo are further along. Glenn said about 70 percent of transpacific cargo moves under contract, compared to 30 percent on the Asia-Europe lane.
Glenn noted that the Transpacific Stabilization Agreement had recommended a voluntary increase of $300 per FEU on March 15 and that APL intends to pursue an increase along those lines. He said APL does not believe carriers are profitable in the transpacific.
Asked about the prospects for further consolidation in the liner industry, Ng said he saw the formation of the alliances as a form of consolidation, but said, “I wouldn’t hold my breath” on the prospect for equity consolidations.
“The industry has always responded to difficult conditions by going on to the alliances and enhancing the scope of the alliances, which is why you see the formation of P3, G6, and now the talk of Evergreen formally joining the CKYH. The alliances provide scope for shipping lines to operate assets together while they compete on sales. Whether the alliances will improve rates — I don’t think so. The biggest driver of freight rates in the industry is a better balance between demand growth and over-capacity growth. The alliances, in my view, will not drive improved rates, what it does is improved the cost side of the business," he said.
"The emergence of alliances is good for customers. Leave aside the whole issue of rates because rates will be a factor of supply-demand," said Glenn. New G6 rotations will give shippers "greater choice, more frequency, expanded port coverage than they ever had before, certainly with the individual carrier or the smaller alliances," he said.
NOL said its supply chain management business, APL Logistics, maintained its steady performance in 2013 despite the weak global economy
It had revenue of $1.6 billion, up 2 percent from 2012, and remained profitable, posting a full year Core EBIT of $64 million, which was 4-percent down from the previous year. The company said the decline was largely attributed to a lower contribution from the contract logistics business.
Contract logistics saw a 2-percent drop in revenue, which the company attributed to an extended automotive plant shutdown in North America during the second and third quarters of 2013, further hampered by a slow sector recovery in the rest of the year.
"Over the same period, International Logistics Services’ revenue improved 10 percent, year-on-year, to $585 million, fueled by business expansion in emerging markets in Asia/Middle East and Latin America. International Logistics Services’ 2013 Core EBIT rose 35 percent, year-on-year, to $42 million," NOL said.