Intermodal Special - Ocean carriers upbeat about increase in revenues in’04

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After years of floundering in the financial doldrums, box carriers are upbeat about the future prospects of the business. But with a big orderbook of super box ships, just how long will the good times roll…and for whom?
By George Lauriat, AJOT
There is an old adage that goes something like this: a rising tide lifts all ships. This maxim rather explains the almost giddy language that flows in the pages of annual and quarterly reports issued by the normally dour owners of containerships. For example, American President Line (APL), the container operating division of the NOL Group, reported, “Last year, [2002] we promised better returns from our liner division. In 2003 APL delivered with record earnings leaving two successive years of unsatisfactory results.” One of Japan’s big three operators, K-Line put the financial improvement a little more soberly, stating, “Confidently, if normalization of container freight rates advances as expected, we [K-Line] will be able to achieve better operating income with the already executed measures for voyage rationalization and cost curtailment.” The important footnote to this statement was that K-Line’s operating income increased by an unheard of 70%, from ¥13.1 billion in 2002 to ¥22.4 billion in 2003.
P&O Nedlloyd also posted some remarkable returns. The container shipping division posted an operating profit of $121 million in the first half of 2004, compared to an operating loss of $51 million for the same period in 2003. (Note in 2004, The company reorganized and changed its name). Royal P&O Nedlloyd CEO Philip Green said, “The continuing improvement in our financial performance at this half year stage has allowed us to revise our own internal expectations for the full year. Subject to any unforeseen change in the economic environment, we expect Container Shipping to achieve at least $325 million profit before interest and tax for this year.” Green added, “Foreseeable supply and demand trends in container shipping remain favorable.” The industry has not heard this kind of talk in a long while.
For the past decade, “voyage rationalization and cost curtailment” or, put another way; alliances, vessel sharing and slot chartering agreements, coupled with draconian cuts in operations have enabled containership operators to endure an extended period of low freight rates. The low freight rates strangled revenues, much to the chagrin of investors and bankers that were often stuck in the unenviable position of investing more for an uncertain future or cutting their losses. This situation caused a sell-off of container shipping interests that still lurks like a specter around every corner window. Despite the low returns on investment, the 1990s also witnessed a dramatic shift in containership size as vessels leapt from the mid 5,000 teu mark to nearly 7,000 teu. The addition of the larger vessels accelerated a reshaping of the industry. With the larger ships vessel sharing and slot charter agreements became necessary if reasonable vessel rotations were to be maintained.
The reshaping of the industry occurred in an era of low freights and luke-warm demand. For example, Mitsui OSK (MOL) in 1993 (the 3rd quarter) averaged over $2,000 per container. By 2003 the average had sunk to just over $1,000 before beginning its current ascent. The current ascent in freight rates is being driven by demand from Asia (China, in particular) to North America and Europe, but it has spread to other trade lanes as well. OOCL, the Hong Kong-based container line that is part of the Orient Overseas International Ltd. group, (in it’s first half 04 report) puts the new industry paradigm in perspective. “Liftings are up 17.2% 479,681 to 409,356 on the Trans-Pacific for the first half of 2004 compared to 2003.” Revues are also up 28.4% $720,490,000 compared to $561,058,00 on that trade lane. Asia-Europe is also up 35.5% or 253,027 teus compared to 186,755 teus with revenue increasing by an impressive 46% ($338,072,000 versus $231,502,000).
To a degree, the improved liftings from Asia were expec

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American Journal of Transportation