NOL faces choppy waters ahead

Global - Uncertainties in the financial market coupled with concerns over the future of container-line operating conditions sees NOL's operating performance in a steady decline.

From 23 August to 19 September this year, NOL reported that container shipping volumes increased 6% year-on year from 191,800 forty-foot equivalent units (FEUs) to 204,000 FEUs. The increase was attributed largely to higher volumes from Intra-Asia trade and the transpacific backhaul trade routes.

NOL's average revenue per FEU also increased 8% year-on year, due to increased bunker recoveries through the Bunker Adjustment Factor, rising from US$2,922 to US$3,151.

However, a statement by Ron Widdow, Transpacific Stabilisation Agreement chairman and NOL CEO, announcing that container traffic between Asia and the US will fall 8% this year and is unlikely recover before the second half of 2009, has affected investor's confidence.

"Clearly, we are in a slowdown right now, but just as clearly, the current freezing up of the global credit system is unsustainable," Widdow was quoted saying to Bloomberg.

"The key reason for declining rates is the increase in global capacity; a projected 15% to 20% increase in capacity has started to come online, against a backdrop of expected volume demand growth of just 5% to 7%," said Rohan Suppiah, spokesperson of Kim Eng.

Suppiah continued, "Projected volume growth of 5-7% could seriously be at risk if global economies go into recession."

NOL pulled out of the bid process for the sale of the Hapag-Lloyd container shipping business on 10 October.

Explaining the decision, Widdows released a statement on the NOL website saying: "We submitted a bid that we believed fully valued Hapag-Lloyd and which addressed the challenging market conditions facing the container shipping industry. NOL will now put all its energy into managing through the current container shipping downcycle and providing our customers with the service they have come to expect of our organisation."

Raymond Yap, spokesperson to CIMB said, "While we are positive in the short term about NOL's withdrawal from the Hapag-Lloyd deal, under current global economic conditions, the damage to container shipping will be severe across all trade."

Media sources reported that year-to-date volumes and average revenue per FEU also showed an improvement of 12% from last year. But as dark clouds gather over the global economic condition, how NOL weathers the storm will prove crucial in determining its future performance.