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Orient Overseas First-Half Net Drops 33% on Fuel Costs

Orient Overseas (International) Ltd. (316), operator of Hong Kong’s biggest container line, reported a 33 percent decline in first-half profit amid rising fuel costs.

Net income fell to $117 million in the six months to June 30, from $175 million a year earlier, the shipping line said in a statement to Hong Kong’s stock exchange today. That compares with the $100 million median estimate of nine analysts surveyed by Bloomberg News. Sales rose 7 percent to $3.1 billion.

Orient Overseas paid an average price of $689 per ton for fuel in the first half, up 16 percent from a year earlier, it said. Shipping lines have started raising rates to offset higher costs and recover from last year’s industrywide losses caused by a vessel glut. Still, freight charges may fall in the last three months as demand will cool after the third-quarter peak season, Chief Financial Officer Kenneth Cambie said.

“There could be significant pressure on rates for the fourth quarter,” Cambie told reporters in Hong Kong today.

The carrier’s average rate for moving a container fell 1 percent from a year earlier in the first half, it said last month, compared with a 6.7 percent decline in 2011.

The Drewry Hong Kong-Los Angeles 40-foot container rate benchmark was $2,380 for the week ending July 18, up 46 percent from a year earlier, after three rate increases by shipping lines and implementation of peak season surcharges, according to Bloomberg Industries.

Asia-Europe

The freight rate on the Asia-Europe route has more than doubled from a year earlier to $1,888 per 20-foot-box on June 30, Geoffrey Cheng, a Hong Kong-based analyst at Bank of Communications Co. wrote in a note to clients on July 31. The rate was about $1,660 at the end of March, according to Cheng.

Orient Overseas fell 2.9 percent, the most in more than a week, to HK$42.60 at close of Hong Kong trading. The stock has dropped 6 percent this year, compared with a 7 percent gain in the city’s benchmark Hang Seng Index.

More than 110 new container ships entered service in the first half even as the industry coped with low demand growth because of sluggish economic activity in consumer markets, Chairman Tung Chee Chen said in the statement.

“The pressure from the delivery of new-build capacity will continue,” Tung said. “The industry’s ability to absorb and judiciously deploy capacity will be key to stability for both the rest of this year and for the next few years to come.”

The company handled 2.59 million 20-foot containers in the first half, 6.1 percent higher than a year earlier, it said in a statement last month.

The price of 380 Centistoke Bunker Fuel, used by ships, averaged $695.61 per ton in the first half in Singapore trading, compared with $629.24 a year earlier, according to data compiled by Bloomberg.

Dividends from a real estate trust and a property revaluation contributed $47.6 million of profit in the first half, Orient Overseas said.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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