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Neptune Orient Shares Fall Most in Three Years After Loss

Friday, 24 February 2012 | 00:00
Neptune Orient Lines Ltd. (NOL), parent of S`outheast Asia’s biggest container line, plunged the most in almost three years after reporting its biggest loss in a decade and saying it had no plans to cut capacity.
The company fell as much as 11 percent, the biggest intraday decline since March 2009. It was down 7.4 percent at S$1.32 as of 10:02 a.m. in Singapore trading. The shipping line was the best performer in the Straits Times Index in the six months ended yesterday.
Neptune Orient said yesterday that it expects to keep capacity about unchanged this year even after a global glut of vessels and rising fuel costs caused industrywide losses. The reluctance to idle ships may scupper efforts to raise cargo fees and offset the company’s efforts to cut costs, said Citigroup Inc. analyst Rigan Wong.
“Internal discipline is insufficient to return NOL to profit unless industry discipline is also present,” he said in note today. A failure to cut capacity means an “upcoming rate increase is likely to be short-term in nature,” he said.
Wong reiterated a “sell” rating and gave a S$1.05 price target. Neptune Orient surged 38 percent in the six months through yesterday on speculation its APL Ltd. unit will be able to revive rates.
The company yesterday reported a loss of $320.4 million for the quarter ended Dec. 30. It was expected to make a loss of $123.6 million in the period based on the average of eight analysts’ estimates compiled by Bloomberg. The carrier’s sales fell 13 percent to $2.4 billion.
Cost Cuts
Neptune Orient Chief Executive Officer Ng Yat Chung plans to cut costs by $500 million this year through steps including reduced fuel usage, better purchasing and improvements in network design, he told reporters yesterday in Singapore.
“It’s a difficult target,” he said. Still, “there is room for us to improve.”
APL is filling more than 90 percent of capacity on Asia- Europe routes and pushing “very hard” for higher rates, said Kenneth Glenn, the unit’s president. The unit has no plan to idle assets, he said.
The shipping line is among carriers seeking to raise Asia- Europe rates by $750 to $800 per 20-foot box starting next month. That would about double spot rates. It is also among six container lines that will begin cooperating on Asia-Europe lanes next month.
The shipping line’s plan to maintain sailings on the Asia- Europe route contrasts with A.P. Moeller-Maersk A/S (MAERSKB)’s plan to reduce its capacity by 9 percent. The Copenhagen-based container line is making cuts in a bid to revive rates.
On Asia-U.S. routes, APL is among 15 lines seeking to boost fees by $300 per 40-foot box next month. The group has also set a $500 per box guideline as they seek rate increases in annual contracts starting around May, according to the Transpacific Stabilization Agreement.
Spot prices for hauling containers to Europe and the U.S. from Asia have risen 45 percent from a 12-month low in December, based on weekly indexes compiled by the Shanghai Shipping Exchange.
Source: Bloomberg
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