Still in the red: Neptune Orient Lines loses $190 million in 2Q

No likely turnaround in sight.

Neptune Orient Lines (NOL) continues to suffer low volume in the liner segment resulting in uninspiring financial results that may linger in the coming quarters.

OCBC Investment Research reports that Neptune Orient Lines’ revenue declined 1% year on year to USD2.05 billion, but operational cost efficiencies resulted in cost of sales decreasing by a correspondingly larger 2% to USD1.88 billion.

NOL’s profit loss was 8.4% smaller than expected at USD53.7 million and core EBIT has improved by narrowing loss from USD41 million in 2Q13 to USD14 million in 2Q14.

Here’s more from OCBC:

Liner’s 2Q14 revenue decreased 2% YoY to US$1.7b, mainly due to: 1) 9.6% decline in volume in the Intra-Asia trade lane, and 2) 2.8% fall in average revenue per FEU in the Transpacific trade lane. Overall, volume was lower by 6% due to capacity management.

We note that utilisation rate averaged 95% in 2Q14. On the other hand, average revenue per FEU was held steady through better trade mix. Fleet efficiency was also improved with three newbuild deliveries and charter return of eight older and less efficient vessels. Cost and operational efficiencies helped Liner reduced its core EBIT loss by 29% YoY in 2Q14. Management expects future competitiveness to come from: 1) sustained operational efficiency, 2) slot cost reductions through a more efficient fleet, and 3) leverage on G6 Alliance.

We think that overcapacity and depressed freight rates would continue, and that cost-
side measures alone are insufficient for turnaround. Industry headwinds are evident in the results as we see that among its main trade lanes (Transpacific, Intra-Asia and Asia-Europe), volume either declined or stayed flat while average revenue per FEU fell for all except one.