News / OOCL blames drop in revenue and profit on 2016 freight rate havoc

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Weak rates played havoc with Hong Kong carrier Orient Overseas Container Line (OOCL) last year, with EBITDA plummeting more than 58% after an 11% decline in revenue.

Group chairman Chee Chen Tung described 2016 as one of the most difficult years in container sector history.

The carrier reported EBITDA of $288.6m, down from $690.4m in 2015, on the back of $5.2bn in revenues, down more than $700m from $5.9bn a year earlier.

“A combination of steady but low growth in most regions and an overhang of excess supply, built up in recent years, led to extremely challenging conditions in many tradelanes for most of 2016,” said Mr Tung.

“As fuel prices rose in the second half of the year, industry performance was badly affected by freight rates that frequently sank below levels seen in 2009.”

The industry had been expecting a weaker performance by the carrier since January, when it released its operational results – although these indicated a 9.1% drop in revenues.

And while the carrier reported a 9% growth in volumes – carrying just over 6m teu compared with 5.5m in 2015 – its average rate, across all trades, dropped at twice the speed, down 18% to $871 per teu.

Similarly, Maersk has reported an 18.7% dip in average freight rates.

Mr Tung cited the results from contemporary carriers as indicative of the severe conditions hampering the entire industry.

In February, Maersk Line reported a 13% decline in revenues – down from $23.7bn to $20.7bn – with Zim reporting shortly after, again with declining revenues, this time of 15.1%.

Hapag Lloyd, due to release its results on 24 March, issued preliminary figures last month, indicating it too experienced a 13% downturn in full-year revenues – from $9.8bn to $8.5bn.

Mr Tung said: “The financial results reported by the industry as a whole give a clear indication of just how severe conditions became.”

Earlier in the year, OOCL had to deny rumours that it could become the next target in the increasingly frenetic merger and acquisition activity taking place in the sector, with COSCO reported to be the leading contender to acquire the carrier.

Recently, these rumours resurfaced, with media reports quoting Drewry Financial Services suggesting CMA CGM would be the “perfect suitor” for OOCL.

It said: “We believe that the group, despite the extremely high leverage, is in a position to bid for [OOCL parent] OOIL if more asset sales follow, while its liquidity position is significantly improved and we expect cash flow generation to pick up following freight rates improvement.”

Furthermore, the report included Drewry’s assertion that OOCL remained one of the most financially sound carriers in the sector, benefiting from a trade mix that would reap rewards from sustained growth in intra-Asia trade.

Mr Tung said that during “turbulent times”, with industry consolidation happening at a pace “few could have expected”, it was a boost for the carrier to have formed the Ocean Alliance with COSCO, CMA-CGM and Evergreen.