NOL warns US slowdown to erode earnings

Neptune Orient Lines, the Singapore state-owned container shipping company, has warned that earnings this year could suffer from a slowing US economy as it reported a 44 per cent rise in net profits to $523m for 2007.

Thomas Held, NOL chief executive, refused to comment on a Financial Times report last week that said NOL was in merger talks with Hapag-Lloyd, the shipping unit of Germany's TUI group, but said that NOL was always seeking acquisition opportunites.

Analysts believe that a downturn in the share prices of shipping companies this year due to slowing growth could spur consolidation in the sector. A NOL-Hapag-Lloyd merger would create the world's third biggest container shipping group.

An industry adviser in Singapore said: “It has been a longstanding and publicly stated goal of NOL to make a major acquisition or merger. I think it makes sense now with the recent fall in share prices for global shipping lines, with the deal driven by NOL and Temasek Holdings,” the Singapore state investment that holds 68 per cent of NOL.

The merger “should be strategically positive to NOL” because it would improve economies of scale, said Credit Suisse. But it cautioned that Hapag-Lloyd was weaker financially and any integration would take time.

A merger between the two shipping groups is seen as complementary since NOL is strong in Asia and Hapag-Lloyd in Europe.

“I expect consolidation in the container shipping industry. We are prepared to take an active role in consolidation,” said Mr Held, including recent proposals by investment banks that NOL might acquired two mid-sized logistics companies, which were not identified.

It is understood that NOL has been talking to several investment banks in selecting an advisor for a possible merger with Hapag-Lloyd, while TUI has hired Deutsche Bank as an adviser, according to the FT Deutschland.

NOL said that increased profits last year were due to higher rates and an increase in shipping traffic from Asia to Europe and the US. But growth in US-Asian trade will slow this year, although it will partly offset by growth in intra-Asian shipping and other markets, it said.

Sales last year climbed 12 per cent to $8.2bn, while earnings per share rose to 35.7 US cents in 2007 from 25 US cents in 2006. NOL's share price has fallen 18 per cent this year on concerns about slowing global demand in shipping, although freight rates may stay firm as shipping lines pass higher fuel costs to customers.

“We're not so pessimistic [about rates] as everybody is,” Mr Held said.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.