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Tuesday, September 27, 2016

Prepare for some ugly numbers this reporting season

Posted to Far East Maritime (by on January 20, 2012

You don't have to be an accounting guru to predict dismal 2011 results, but China Shipping's expected financials give an indication of the depth to which container carriers can expect to sink.

Could you spend US$385 million in one year? Even if you went out on a spending spree and bought a palatial home in Hollywood, a couple of fast cars to replace the receding hairline, new appendages for your partner and a wardrobe that would reduce the Kardashians to tears, you would still have well over $300 million left.

As an individual, ploughing through that amount of money in a year would take a bit of work. For a container line, however, making hundreds of millions of dollars disappear poses no such problems.

Yes, it is almost reporting season once again where we get to marvel at the bitter infighting between the top and bottom lines that produces such eye-popping turnarounds in profitability from year to year.

The first of the results will be out soon, but China Shipping Container Lines has already issued a profit warning. We imagine the CFO must have been given a sneak peek at the company balance sheet and recoiled in horror.

After being revived he released the statement, which was rather short on details, which is okay because that’s what analysts are for. With no hard facts, transport analysts have the ability to meticulously study the industry, scrutinize the company performance and examine its interim results before sucking their thumbs and writing down the first number that pops into their heads.

That number, according to an analyst who reads the South China Morning Post on occasion, is $385 million. It is what CSCL, China’s second largest container carrier, is expected to have lost in the last year.

For the sake of this blog, let’s take that figure as gospel. If any more evidence was required that container shipping is a highly volatile, unpredictable and oddly run industry – and surely after the last few years no further evidence of that is needed – take a look at the 2010 results. That was the year of the rebound when demand surged after a chronically weak 2009. Container lines all turned in stronger than predicted profits and right up among the best performers was CSCL with a net position of $665 million.

Sure, this is not the first time it has happened, but the billion-dollar differential from year to year is still just incredible. What other industry can afford to operate with its profitability chart looking like a profile of the Himalayas.

In its January 16 edition, Cargonews Asia carried a piece speculating on CSCL and the container division of Cosco merging to form one big box carrier. They are both state owned and according to PR News Service, there has recently been personnel swaps between the two companies at top and middle management levels.

It is an interesting thought. Cosco’s container shipping results will almost certainly match the poor performance of CSCL, and 2012 is not looking much brighter than the pile of muck that was 2011.

Maersk is slowly taking over the world, lines two and three have joined forces and carriers within the alliances are forming even stronger links in a desperate bid to cling on to market share.

So with red ink swamping their balance sheets, in the current environment of “bigger is better” maybe a merger between China’s top two carriers would not be such a bad idea, after all.



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