Volumes are climbing but downward pressure remains a concern for CP Ships Limited today as the ocean carrier announces unaudited fourth quarter 2002 operating income (before exceptional items) of US $34 million.
Its performance is unchanged from the third quarter and is just slightly down from $35 million in fourth quarter 2001.
Good news is the fact that volume at 550,000 teu was a quarterly record, up 17% from fourth quarter 2001, reflecting both strong growth and the first full quarter of the Italia Line purchase.
Downward pressure on rates remains, however. CP Ships reported that average freight rates increased 1% from third quarter 2002 but were 4% lower than fourth quarter 2001.
For the full year, container carryings at 2.0 million teu were 9% higher than 2001, while the average freight rate was down 10%. Operating income before exceptional items was $83 million compared with $139 million in 2001.
Return on average capital employed at 6% was down from 13% in 2001. Net income available to common shareholders was $52 million compared to $66 million in 2001.
In the fourth quarter, CP Ships provided additional sailings in the Asia-Americas trade in response to strong growth in demand. Building on this, a new fixed day weekly service between North East Asia including China and Vancouver BC is now being implemented with five ships.
CP Ships also underwent some important restructuring in 2002.
In December, the withdrawal from the slot charter agreement with CMA CGM in the Asia-Europe trade was announced, effective early March 2003.
"Despite recent improvement in freight rates, the service remains unprofitable and CP Ships will therefore exit the Asia-Europe trade at the end of this slot charter," CP Ships says in a statement adding that seasonal weakness in the first quarter will partly offset the expected positive impact of withdrawal on full year 2003 results."
In October, an extensive restructuring of the Australasian trade lanes was announced. From January 2003, two separate weekly fixed day round-the-world routes linking Australia, New Zealand and the Pacific Islands with Northern and Mediterranean Europe and the US East Coast operate with 22 ships in place of the previous 34 ships deployed by CP Ships and its partners.
"The new service structure is expected to improve frequencies and transit times and be more cost efficient," the company claims.
Also during the quarter, Canada Maritime agreed to charter a fixed number of slots to members of the Canex consortium in the Montreal Gateway trade. Together with the consortium’s planned move of its existing service from its current marine terminal to Montreal Gateway Terminals in March, there are expected to be overall improvements in trade lane operating efficiency.
The estimated negative net impact of the US west coast dockworkers dispute on fourth quarter results was about $2 million.
During the quarter, CP Ships also began the process of adapting its cargo acceptance and documentation procedures to comply with US Customs 24-Hour Advance Notification Rule and expects to meet the compliance deadline of 2 nd February. All our brands are members of the US Customs Trade Partnership Against Terrorism (C-TPAT) and Canadian Partners in Protection (PIP).
CP Ships took delivery of a further four new containerships being built under the company’s $800 million 23 ship replacement program during the fourth quarter. The remaining four new, one used and six long-term chartered ships are expected to be delivered on schedule by the end of the third quarter 2003.
Annualized 2002 cost reductions were about $125 million, of which $100 million contributed to the 2002 result. Cost per teu for the year fell by just over 5% from 2001.
The ship fleet decreased from 92 on 30 th September to 89 ships on 31 st December mainly due to Australasia services restructuring.
On a market by market basis, CP Ships reported the following results today.
TransAtlantic Market Fourth quarter operating income of $21 million was down by $8 million on the same period in 2001, but was the strongest quarter this year. Volume was up 22% reflecting both Italia Line and underlying growth while freight rates were lower by 6%. However, freight rates were up 6% from third quarter on higher westbound trade lane capacity utilization.
Full year operating income at $60 million declined by $19 million from 2001. Volume was up 10%. Underlying unit operating costs were lower. But, freight rates fell by 13% mainly in the first half of 2002.
Australasian Market Operating income of $13 million was much higher than fourth quarter 2001 due to significantly lower operating costs, even though volume was down 3% and freight rates flat. But, freight rates were up 2% from third quarter 2002 and 4% from the second.
For 2002, operating income of $27 million was slightly lower than 2001 with lower operating costs offsetting weaker volume, down 4% due to slower exports from Australasia, as well as 6% lower freight rates.
Latin American Market Operating income declined to $2 million from $7 million in fourth quarter 2001. Average freight rates, down 17%, as well as losses from the expanded Gulf-West Coast South America service offset stronger underlying northbound volume. Freight rates declined for the seventh successive quarter; 4% from third quarter 2002.
For the full year, operating income declined to $21 million from $28 million in 2001. Lower freight rates, heavily down by 16%, were partly offset by lower unit operating costs.
Asian Market There was an operating loss of $5 million in fourth quarter compared with a loss of $13 million in the same quarter last year and a loss of $4 million in third quarter 2002, all driven by losses on the Asia-Europe trade. In other Asian trades, volume grew by 17% in fourth quarter. Average freight rates were flat compared with both fourth quarter 2001 and third quarter 2002.
For 2002 as a whole, the operating loss increased to $38 million from $13 million the previous year. Excess trade lane capacity affected freight rates significantly in the first half of the year. Excluding the Asia-Europe services, Asian Market volume grew by 8%.
Other Trades Fourth quarter operating income was $3 million, down $2 million from the same period in 2001. For the year, operating income at $13 million was down $3 million with less profit from chartering out surplus ships.