Neptune Orient has biggest loss in 7 years on trade

May 12, 2009
Singapore Democrats

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Chan Sue Ling
Bloomberg

Neptune Orient Lines Ltd., Southeast Asia’s largest container carrier, reported its biggest quarterly loss in at least seven years as the global recession pummeled trade and freight rates.

The company posted a net loss of $244.6 million in the three months ended April 3, compared with a net income of $120.7 million a year earlier, it said in a Singapore stock exchange statement today. Revenue fell 36 percent to $1.5 billion.

Chief Executive Officer Ron Widdows has taken a pay cut and idled ships as the company battles a global recession that caused a 27 percent drop in first-quarter traffic. A.P. Moeller- Maersk A/S and Evergreen Marine Corp. have also posted losses as U.S. and European consumers pare spending on Asian-made computers and toys.

“Global economies are still struggling and demand for trade will probably only come back in 2010,” said Louis Wong, who manages $50 million at Phillip Securities HK Ltd. “Capacity has come down because shipping companies have idled ships but supply still needs to be tightened further going forward.”

The shipping line, also known as NOL, dropped 3.4 percent to S$1.44 at the close of trading in Singapore today. Of the 17 analysts tracked by Bloomberg in the past 12 months, 11 recommend investors sell the stock, while the rest have a “hold” rating.

“Significant loss”

“For the rest of the year, NOL anticipates a continuation of adverse business operating conditions,” the company said in a statement today. “NOL reiterates that it expects to post a significant full-year loss.”

APL Ltd., the container-shipping unit of Neptune Orient, posted a loss of $236 million before interest and taxes in the three-month period. Revenue dropped 36 percent to $1.29 billion. The unit carried 481,000 forty-foot equivalent boxes in the quarter, 27 percent fewer than the year before. Average container freight rates sank 16 percent to $2,474 in the period.

Global trade may plunge 9 percent this year, the most since World War II, as the recession deepens, the World Trade Organization predicted on March 23. Maersk said today it “can’t rule out” reporting a loss for the full year. Its container shipping unit posted a first-quarter net loss of $559 million.

Challenging outlook

“The outlook for the industry remains very challenging,” Raymond Yap, an analyst at CIMB-GK Research in Kuala Lumpur, wrote in an April 28 report. “Rates could weaken once again from early 2010 should demand remain as depressed as we currently expect.”

Widdows, who took the helm last July, voluntarily agreed to take a 20 percent cut in basic pay from March, while non- executive directors have accepted a 20 percent reduction in fees. The company last month said it’s more than doubling its cost-savings target for the year to as much as $550 million.

Neptune Orient said last year it will slash 1,000 jobs, or 9.1 percent of its workforce, and move its Americas headquarters to Phoenix, Arizona, from Oakland, California, to reduce costs. It has also pushed back deliveries of some vessels to 2012, and may return some ships to owners as charter contracts expire. As of December, it had idled 12 ships.

Even so, anchoring ships is only a temporary solution and shipping lines may have to cancel orders to ease the supply overhang, Eng Aik Meng, president of APL, said last month.

More than 1,100 ships that can carry a combined 6 million 20-foot standard containers will be delivered by the end of 2012, Toshio Shimizu, an executive in charge of container and port businesses at Kawasaki Kisen Kaisha Ltd., Japan’s third- largest shipper, said last month. Cancellations will be needed for shipping companies to remain viable, he added.

Earnings before interest and tax at the company’s logistics business fell 18 percent to $14 million. Revenue fell 34 percent to $241 million. Profit before interest and tax at Neptune Orient’s terminal division sank 67 percent to $4 million, while revenue tumbled 23 percent to $112 million.

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