Overcapacity ‘will continue to cap freight rate gains’

Improving volumes made up for a “mixed” freight rate picture in the first half of the year for shipping line OOCL.

Hong Kong-headquartered Orient Overseas International said its container shipping subsidiary handled 2.8 million TEU in the first six months of the year, 10.1% up compared to a year earlier.

A five point improvement in the load factor helped the line increase revenue 4% over the period, turning the US$15.3 million loss recorded in the first six months of 2013 into a profit of US$181.3 million in 1H 2014.
“While freight rates across various trade lanes had a mixed performance against first half last year, additional liftings made up the revenue shortfall,” said a statement by OOIL. “The first six months of 2014 saw a robust growth in cargo demand in the major European and American markets.”
OOIL chairman CC Tung said he was cautiously optimistic on the global economy, but warned that profit levels across the liner shipping industry would continue to be capped by the large newbuilding orderbook.
“The industry will continue to face overcapacity in the coming years,” he said. “Despite the gradual recoveries of the developed economies, demand growth is not expected to return to the pre Global Financial Crisis level over the short to medium term.
“At the same time, gross static supply growth remains high with the orderbook-as-a-percentage-of-fleet ratio at 9.3% and 9.8% for 2014 and 2015, respectively. Unless bunker prices can decline to a more reasonable level, the drive for scale and fuel efficiency will translate into continued newbuilding projects.
“As a result, the challenge of overcapacity will likely persist over the short to medium term.”
OOCL took delivery of two 13,208 TEU newbuildings in the first half of the year. “We expect to take delivery of another four 8,888 TEU SX Class vessels in 2015,” added Tung. “These newbuildings represent the end of our last round of newbuilding orders.”