Orient Overseas Intl raises key market issues

The comments by the owner of shipping line Orient Overseas (International) Limited (OOIL), around the company’s results for the half-year 2023, were interesting both for their candour and their precision. The Hong Kong shipping line and logistics company, which is owned but not operationally controlled by the Chinese state-owned enterprise COSCO, saw revenue more than halve year-on-year to US$4.5bn, whilst operating profit crashed from US$5.745bn to H1 2022 to US$1.134bn in H1 2023.

Yet despite this violent fall, the management of OOIL observed that “the market is very far from being in disaster territory”. Rather, they noted, “as was clearly to be expected, the extraordinary market conditions of the past two to three years came to an end. The long, steady decline in freight rates, which began around the middle of last year, continued during the first half of 2023. The fall from the great heights of 2020-2022 has certainly been spectacular in terms of both absolute dollar value and in terms of percentage, but this is simply a reflection of just how high the freight market had risen”. It might be suggested that this reflected in the lower, but still significant, profitability of OOIL. Indeed, OOIL point out that container freight rates are still at the level they were in 2019 or higher.

As the for future prospects, OOIL also articulates some interesting opinions. Demand for container shipping, OOIL believes, may be improving whilst “shipping companies are behaving rationally in the face of fluctuating demand”. Yet it does admit that “there are risks associated with the impact of inflation and higher interest rates on consumer spending, and from the unclear economic outlook. There is also the uncertainty of not knowing exactly what the net fleet growth, in terms of effective capacity, will be in the coming months and years”.  

Perhaps OOIL is being slightly optimistic about the market. Both the demand picture for containers and the behaviour of the shipping lines may not be as benign is they suggest. However, the underlying issues they raise are key. Freight-rates are not exceptionally low and the economies of major shippers have not entered recessions, with the possible exception of Germany. The one area where OOCL optimism may be inaccurate is the behaviour of some shipping lines in buying new ships.

Author: Thomas Cullen

Source: Ti Insights

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