Here's why unprofitable NOL simply can't stay afloat on its own

Merging with a stronger liner might be the only way out.

Gone are the days when Neptune Orient Lines was a force to be reckoned with in the global container shipping space. The once-proud shipping giant is now on its beam ends, dragged not only by persistently low freights but also by its own inability to keep up with its aggressive peers.

A report by DBS highlighted that NOL will find it increasingly more difficult to stay profitable on its own, and merging with a stronger liner may be its only remaining lifeline.

"NOL could find itself in a position of lesser and lesser prominence in the global liner space, and may also find it hard to achieve consistent profitability amid a muted industry outlook. Consolidation may be beneficial to both parties in our opinion,” said the report.

For instance, NOL has slipped down the league table of top liner operators due to its strategy of sacrificing volumes in favour of profitability.

Its smaller fleet also gives it lesser bargaining power with with suppliers such as bunker fuel and port operators and other land based costs.

Although its balance sheet has strengthened after the sale of APL Logistics, the company's nature as a pure play liner is likely to drive up funding costs.

"[Consolidation] can lead to better network planning, and greater bargaining power when dealing with suppliers such as bunker fuel and port operators and other land side costs. The combined entity could leapfrog to the Top 5 container liner category; bring more visibility and bargaining power. If listed, bigger market cap will be beneficial to liquidity and investor coverage,” DBS noted.
It has earlier been reported that NOL’s controlling shareholder Temasek is looking to divest its stake in the firm.