OOIL reports 7% drop in liner lifts in 2022

Orient Overseas (International) Limited (“OOIL”) today announced net income attributable to shareholders of US$9,965.2 million for 2022 compared to net income of US$7,128.1 million in 2021.

Earnings per common share in 2022 were $15.09, while earnings per common share in 2021 were $11.08.

The Board of Directors has recommended that the full-year 2022 dividend be approximately 70% of earnings attributable to shareholders of approximately $6,974 million, with proposed payment of a final dividend of $2.61 per common share and a second special dividend in US dollars $1.95 per common share for 2022.

In last year’s annual report, we wrote that our 2021 results, which include the highest-ever revenue, lift and profit numbers for our core container shipping and logistics business, even surpassed the outstanding result of 2020. At this point we could not have foreseen that the results for 2022 would once again break new records. The earnings and cash flow generated from the 2022 results place us in a very strong position to fund not only our continued program of measured and intelligent growth, but also our ongoing investments in information technology and the digitization of our business to finance the industry. In addition, they enhance our already robust balance sheet, which is strong enough both to withstand the challenges of cyclical markets and to provide attractive returns for our shareholders.

For much of the first half of the year, the container shipping market was in the same conditions as the previous 18 months, with effective supply levels under immense pressure while at the same time demand continued to grow moderately. The pressure on effective supply levels had been caused by severe congestion at several points in the network and was most clearly seen in long lines of ships queuing to enter the ports of Long Beach and Los Angeles, and at times in Delays of two to three weeks for ships to call at some of the major US East Coast ports. The impact of downward pressure on effective supply caused by these disruptions far outweighed the impact of increased nominal supply caused by the massive deployment of additional capacity on the busiest trade lanes and the entry of new smaller competitors into key markets such as the transpacific became trade routes. However, as the year progressed it became increasingly clear that market conditions were beginning to change.

On the supply side, moving cargo away from the US West Coast eventually helped ease pressure on ports and the local supply chain, and began having a significant impact on reducing congestion. Some of these changes were not caused by fluctuations in underlying demand but by deliberate steps by some importers to avoid in 2022 some of the shortages that were at the heart of the disruptions in 2021, especially when the potential for further disruptions preceded possible ones labor disputes. Initially, this helped increase congestion on the US east coast, but after a few months congestion there, as well as in northern Europe and the major ports of Asia, began to ease. This significant reduction in congestion has already resulted in an increase in the effective level of supply in the market.

In terms of demand, excess inventories began to build up in some key import economies, notably the US, partly due to unmet expectations for year-on-year demand growth and partly because supply chain bottlenecks caused large volumes of goods to be delayed including seasonal goods. The result of this was that while consumer spending did not slow down significantly (despite perfectly rational concerns about the impact of inflation and interest rate hikes), importer demand for containerized transport began to decline significantly. Freight rates on most major trade routes began falling from their tremendous highs, setting in motion a long-predicted trend toward less extreme levels. In the final quarter of the year, rates on many trade lanes gradually approached pre-pandemic levels, and occupancy rates were often below optimal levels. That said, we all need to be careful not to be so swayed by the magnitude of the precipitous drop in freight rates that we don’t properly contextualize current rate levels, which are generally similar to rates in 2019 and early 2020 in the much harder times of say 2016 or even 2009.

Working with other members of the COSCO SHIPPING Group continues to result in significant benefits in terms of efficiency, cost savings and the ability to serve our customers with a larger and global reach. We continue to evaluate ways to improve and deepen our collaboration, with a win-win approach that benefits customers, employees, business partners and shareholders alike.

In March 2023 we took delivery of the first ship built for the group since 2018. This 24,188 TEU megaship, the OOCL Spain, and the 28 ships to follow over the next 5 years, represent the next stage in our long-term plan of measured and intelligent growth. Seven of the ships still under construction will be dual-fuel methanol vessels, putting us at the forefront of environmental advances in shipping and a clear demonstration of our commitment to decarbonization. Our extensive new build program is a clear sign of the intention of the COSCO SHIPPING Group, of which OOIL is a part, to be a leading player at the forefront of the industry and also the commitment of the whole group to their very successful dual brand strategy.

Our logistics business, OOCL Logistics, performed very well in 2022. Furthermore, the cooperation between our logistic business and our line side will be an important driver in our plans to develop more and more end-to-end business with our customers.

The OOIL Group has long been recognized as a leader in the development of information technology for container shipping and the digitization of our industry. Our Freightsmart platform, providing instant quotes and bookings, provides a valuable new channel for our customers and a new means of targeted outreach for us. Freightsmart has made significant strides in 2022 and has been a valuable tool in coping with the disruptions and changing trends of the market. We continue to develop IQAX, a wholly owned subsidiary that will play a leading role in driving the digital transformation of the container shipping industry.

The business outlook is mixed and while we do not expect any significant changes in the first half of the year, the timing of any improvement will depend on a long list of macroeconomic factors as well as the evolution of relative supply and demand growth. The only thing that is certain is that there will be challenges.

As of this writing, this unmistakable downward trend in freight rates appears to be stabilizing. While we can expect occasional further declines in the seasonally calmer two to three months after the Chinese New Year holiday, weekly spot rate movements are no longer as dramatic as they were during much of the second half of 2022, and utilization factors are increasing Some routes are showing clear signs of improvement. However, it seems unlikely that the framework conditions for the industry will change significantly in the first half of 2023. Thereafter, if importers in countries like the US have made further progress in de-stocking, then if the economic outlook has improved, e.g. if inflation has peaked and employment data remain strong, then in the second half of the see some improvement by 2023. However, given the magnitude of the legitimate concerns about the future impact, there can be no certainty about this outcome of inflation, interest rate hikes and broader economic and geopolitical instability.

A further increase in supply will be created in 2023 and 2024 by the delivery of new ships – this could delay an improvement in container shipping markets even if the economic situation is more favorable than expected. While there is certainly mitigation of that risk from increased supply, such as increased likelihood of ship scrapping and more importantly new environmental regulations, these will take some time to be felt and as such they will be until the second time around do not offer a major counterweight until mid-2023 at the earliest. In the meantime, it could be that the shipping companies look at the expected demand in the first half of the year and recalibrate their services according to the possibly reduced requirements of their own customer portfolio.

Rest assured, no matter the challenges, OOIL will adapt and be ready to serve its customers. We will continue to work tirelessly and diligently to be at the forefront of our industry as an important link to world trade.

As of December 31, 2022, the Group had cash and bank balances of $11,213.9 million compared to debt obligations of $712.2 million to be repaid in 2023. The Group had a net cash-to-equity ratio of 0.68:1 at the end of 2022 compared to 0.47:1 at the end of 2021. The Group prepares and updates from time to time cash flow forecasts for asset acquisitions, to meet project development needs as well as working capital needs, aiming to maintain an appropriate balance between a conservative level of liquidity and effective investment of excess funds.

OOIL owns one of the world’s largest international integrated container shipping companies trading under the name ‘OOCL’. With around 440 offices in around 90 countries/regions, the group is one of Hong Kong’s most international companies. OOIL is listed on the Hong Kong Limited Stock Exchange.

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