The inside story on how loss-making NOL finally managed to book a profit in Q2

It gained massive cost savings from an unexpected source.

Neptune Orient Lines finally managed to book a profit in the second quarter, after several quarters of languishing in the red.

Although bulk of the profit was due to divestment gains from the sale of APL Logistics, CIMB noted that another, less conspicuous hero is also behind NOL’s good results.

“NOL quietly abandoned its loss-making inland transportation business. This is the first time we have heard NOL speak on this part of the business, and had not factored in such significant cost savings,” said CIMB analyst Raymond Yap.

NOL had decided to reduce its exposure to inland cargo transportation, which had drastically reduced operating costs.

“The key lies in understanding how less-than-optimally NOL had been running its business before this, and the decision that NOL took to aggressively put loss-making cargoes on the chopping board. NOL’s volumes fell 12% yoy in 2Q, on top of the 15% fall in 1Q, as it reduced its exposure to door-to-door boxes which required inland transportation, for which freight rates never fully compensated for the land-based costs,” CIMB said.

“This move to a higher proportion of port-to-port cargoes, and a lower exposure to higher-rate door-to-door cargoes, partly explains why NOL’s freight rate drop fell so much,” he added.

NOL reported a net profit of $1.22b (US$890m) in the second quarter, compared to a net loss of $74.2m (US$54m) in the same quarter last year.