NOL's cost-cutting makes scanty US$100m savings

This is just around 20% of the line's full-year target of US$500m.

According to UOBKayHian, NOL declared its cost-saving initiative, namely, Efficiency Leadership Program (ELP), will become the strategic keystone to survive amid a highly unpredictable freight market. Initiatives in NOL’s plan include extra slow steaming (but we believe there is little room to expand, particularly on AE loops), relocating business from high-cost areas to low-cost areas (as what they did in 2008-09), improving design of network, and introducing e-auction for the procurement of trucking services in the US.

Here's more from UOBKayHian:

Further, more substantial efficiency improvement would be fleet structure optimisation, alongside uneconomical chartered-in vessels being redelivered and newly built very-large container ships coming in. NOL managed to reduce its bunker fuel consumption per teu (4% increase in volume but 20% reduction in bunker fuel consumption) and ELP led to around US$100m cost savings during 1Q12, which is 20% of NOL’s full-year target of US$500m.

1H12 results might be disappointing. Since NOL has a smaller exposure to AE trade lane (17%), it is less leveraged to the 2Q12 AE rates rally. Also NOL has greater exposure to TP contractual cargo (90% for NOL vs 50% for CSCL) of which rates are substantially below spot rates (US$1,800/feu vs US$2,476/feu). Moreover, smaller vessels (up to 9,000teu) deployed on AE trade depressed NOL’s profitability on high per teu cost. Therefore 1H12 results might be disappointing.