Orient Overseas Profit Jumps 63% as Container Rates Rise

Orient Overseas (International) Ltd., owner of Hong Kong’s biggest container line, posted a 63 percent increase in full-year profit that beat analyst estimates as freight rates rose.

Net income climbed to $296.4 million from $181.6 million a year earlier, the shipping line said in a statement to Hong Kong’s stock exchange yesterday. That surpassed the $275.7 million average of 20 analysts’ estimates compiled by Bloomberg. Sales rose 7.4 percent to $6.46 billion.

Shipping lines including A.P. Moeller-Maersk A/S’s container-shipping line, the world’s biggest, have started raising rates to offset higher fuel costs and recover from industrywide losses in 2011 because of a vessel glut. Orient Overseas’s average rate for moving a container increased 2.9 percent last year, after a 6.7 percent drop in 2011.

“Orient Overseas benefited as a premium player in the market and through effective cost controls,” said Lawrence Li, a Shanghai-based analyst at UOB-Kay Hian Holdings Ltd. “Looking ahead, the new bigger vessels it is going to receive may help reduce” fuel consumption even further, Li said.

The shipping company is due to receive eight vessels this year that can carry 13,000 20-foot containers and will be used by the G6 Alliance, Chief Financial Officer Kenneth Cambie told reporters in Hong Kong yesterday. The shipping line, which had a fleet of 98 container vessels at the end of 2012, will also receive another two ships that can carry 8,888 boxes.

While Maersk is due to take delivery of the world’s biggest container ship that can carry 18,000 boxes in June, Orient Overseas needs to run larger vessels to be competitive, Cambie said.

Young Fleet

“Trades are moving to very large vessels” and the focus is on reducing average slot costs, Cambie said. The company has no plans to idle or scrap ships as the fleet is young, he said.

Total bunker costs for the line were unchanged at $1.21 billion in 2012, even as average fuel prices rose 6 percent.

Freight rates were seasonally low after the Chinese New Year holiday in February, and Orient Overseas expects to effect rate increases in its contract negotiations with clients through April and May as in previous years, Cambie said.

The Drewry Hong Kong-Los Angeles 40-foot container rate benchmark fell 3.9 percent to $2,436 in the week ending Feb. 27, after holding steady for two straight weeks due to the Lunar New Year, according to Bloomberg Industries. Rates have jumped 37.5 percent from a year earlier.

Orient Overseas handled 5.22 million 20-foot containers last year, 3.7 percent higher than a year earlier. That included 1.25 million boxes in the transpacific market and 885,323 containers on the Asia-Europe route.

Final Dividend

The company plans to pay a final dividend of 7.18 cents per share. It didn’t pay final dividend for 2011. The stock rose 0.7 percent to HK$55.90 in Hong Kong yesterday, before the earnings were released.

The Shanghai Containerized Freight Index, a measure of rates for goods leaving China’s busiest port, rose 20 percent last year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE