Ocean Network Express Posts Loss in Debut First Quarter

Ocean Network Express Posts Loss in Debut First Quarter

Posted: August 7, 2018 | Newsletter

ONE, which began operations on April 1, generated $2.07 billion in revenue, compared with to the alliance's $2.9 billion revenue guidance. (ONE comprises "K" Line, MOL, and NYK Line).  The merged carrier is the largest in terms of US imports from Asia, but service issues around the merger cost the carrier 2.5 percentage points in market share for 14.3 percent during the first half of 2018, according to data from PIERS, a sister product of JOC.com.
The container shipping industry earned about $7 billion in 2017, following six straight years of losses. However, initial forecasts of an encouraging 2018 gave way to a slow start, as rising bunker fuel prices, higher charter/inland costs, and overcapacity concerns have hit first-quarter results. In addition, trade tension and the threat of lasting trade tariffs (beyond negotiating 'stances') among the world's major economic powers (the United States, China, and the European Union) threaten to dampen global trade.
"K" Line placed much of the blame for the slide into an overall operating loss of 13.7 billion yen ($123 million) in the April-July period from a year earlier profit of 3.88 billion yen on ONE's failure to meet its member carriers' targets.
ONE's financial results "deteriorated compared with the initial plan because of a lower-than-expected handling volume for providing clumsy services in [the] initial stage right after service start-up and a rise in bunker prices on the expenditure side, "K" Line said.  
ONE's volume of US imports from Asia fell 11 percent in the first half of the year to 1.1 million TEU as the market expanded 4.5 percent to 7.8 million TEU.

ONE still expects to meet its revenue targets.

"But since then, various improvement measures have been implemented and operations are returning to normal."
ONE expects to meet its net earnings target of $110 million for the fiscal year, driven by cost savings and rising utilization levels, which hit 90 percent on the eastbound trans-Pacific trade and 92 percent on the head haul Asia-Europe route in July.
The joint venture is forecasting a second-quarter profit of $82 million and a second-half profit of $147 million. Full-year revenues are estimated at $12.254 billion.

Article from JOC.com

CPC Commentary:
Overcapacity and less than stellar demand continue to challenge the profitability of Ocean Carriers. Consolidated operations will help streamline administrative costs, but eventually, revenue needs to increase in order to become sustainable. Additionally, CPC conducted a survey amongst its largest ocean shippers and the common theme (not mentioned in the article) deals with trust and predictability with ocean service.  The Long Beach Port Strike of 2015 still is in recent memory and Importers are still hesitant to rely solely on Ocean Carriage services. 

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