OOCL profit up 1.7%, but bunker costs prevent more gains

Hong Kong ocean carrier OOCL's parent OOIL said Thursday that profit for the first six months of 2008 from its container and logistics division was up 1.7 percent, to $208.9 million, compared to the same period in 2007.

But it said further profits were stymied by high oil prices as bunker costs eat up a larger and larger percentage of vessel operating costs.

Group turnover increased 27.4 percent to $3.2 billion, while container volume increased 9.4 percent. OOCL accounted for 99 percent of OOIL's group turnover. 

The first half of 2008 has been a further positive period for the group, with our core business of container transportation and logistics achieving an improved profit for the period compared to the first half of 2007,?OOIL Chairman C.C. Tung said in a statement.

OOCL said improved revenue was largely matched by increased costs from high oil prices, which were felt both directly through higher bunker fuel costs and indirectly through higher terminal and third-party transportation costs, like trucking and North American railroad charges. The average bunker price OOCL paid for the first half of 2008 was $502 per ton, 64 percent higher than the $306 per ton recorded in the same period of 2007.

While savings in consumption have continued to be achieved through revision of sailing and operational programs such as slow steaming, bunker now represents 79 percent of voyage costs versus 70 percent during the first half of 2007, the carrier said.

Tung said that adding floating bunker fees into transpacific contracts is step forward for carriers.

While higher bunker fuel costs are increasingly mitigated through separate bunker surcharges and operational adjustments, base freight rates need to adjust to cover the less transparent increase in other operating costs, he said. The introduction of a separate floating bunker charge into a majority of contracts for transpacific services during the 2008 contract negotiations is a positive development in achieving improved bunker cost recovery. He also said the second half of 2008 will be tougher than the first half.

The second half of 2008 is expected to be considerably more challenging than the first half has been, with increased industry capacity, the impact on demand growth rates of slowing U.S. and global economies, and ongoing cost pressures from high energy prices, Tung said. clearer outlook for global economic growth in 2009 will develop over the remainder of the year, especially as to whether economic conditions in the United States will stabilize next year or an even lower rate of growth is experienced than is forecast for this year. In the face of this uncertainty, we do remain exposed to the risk of deterioration in freight rates as these are market driven and vulnerable to adverse swings in sentiment.

Source: American Shipper