Shipping line expects first loss in 7 years as economic downturn takes its toll
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NEPTUNE Orient Lines Ltd (NOL), South-east Asia's biggest container carrier, will increase cost-saving measures as it forecasts its first loss in seven years on slumping trade.
The company lifted its cost-savings target for the year to as much as US$550 million, from an initial plan of US$250 million, chief executive officer Ron Widdows said in a presentation to shareholders yesterday. Mr Widdows, who became CEO last July, has voluntarily agreed to take a 20 per cent cut in basic pay from March, chairman Cheng Wai Keung said at the meeting.
'We see a very difficult period ahead,' Mr Cheng said. 'Our focus will be on riding out the storm. We will put in place additional measures to help counter the effects of the economic downturn.'
NOL expects a loss this year as the global recession cuts demand to transport Asian-made computers, toys and furniture. The worst economic crisis since the Great Depression has hammered rates, prompting NOL, AP Moeller-Maersk A/S and other lines to take vessels out of service, cut routes and eliminate jobs.
Mr Widdows received a total compensation of between US$1.6 million and US$1.75 million in the year ended December, according to the company's annual report. Salary accounted for 30 per cent of the total, 11 per cent was in the form of bonuses and 27 per cent was equity incentives. Benefits made up the rest.
Mr Cheng, who received US$165,887 in fees last year, said he will take a 40 per cent reduction, while non-executive directors have agreed to take a 20 per cent cut.
'We continue to look at opportunities to improve our overhead costs, find ways to do things more efficiently,' Mr Widdows said yesterday.
NOL, based in Singapore, said last year it will slash 1,000 jobs, or 9.1 per cent of its workforce, and move its Americas headquarters to Phoenix, Arizona, from Oakland, California, to reduce costs. It also pushed back deliveries of some vessels to 2012, and may return some ships to owners as charter contracts expire. As of December, it had idled 12 ships.
Global trade may plunge 9 per cent this year, the most since World War II, as the recession deepens, the World Trade Organization predicted on March 23. Shipowners may mothball the largest number of vessels since the 1970s as trade slumps, according to GAC Solutions Ltd, the world's biggest provider of shipping services.
Crosswinds APL Ltd, NOL's container-shipping unit, carried 137,800 forty-foot equivalent boxes in the four weeks ended March 6, 21 per cent lower than the year earlier. Average container freight rates sank 16 per cent to US$2,382.
'The industry not only faces rate declines, but significant volume contractions,' Tom Kim, Ronald Leung and Yasuharu Sugimura, analysts at Goldman Sachs Group Inc, wrote in an April 3 report. 'We expect these crosswinds to result in record losses for the industry this year.'
NOL shares sank 2.6 per cent to close at $1.51 yesterday. The stock has risen 30 per cent this year, after tumbling 71 per cent in 2008.
Oversupply of container ships will be the key challenge this year because shippers have not cancelled orders fast enough amid plunging demand, said Ryu Jay Je-Hyun, an analyst at Mirae Asset Securities Co in Hong Kong.
'The concern for container lines is the delivery of ships starting in the second half of the year,' said Mr Ryu. 'Right now, we're not seeing a significant recovery in demand in the US or Europe. The supply and demand gap is widening.'
The company has taken delivery of one vessel this year and expects another 12 to arrive by the end of December. It is scheduled to receive five more ships in 2010, none the year after, and 10 in 2012. - Bloomberg
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