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CP Ships meet earnings expectations

CP Ships Ltd announced unaudited Q4 2001 operating income of US$35mn before exceptional charges, in line with the previous quarter's $34mn but down from the record $47mn in Q4 2000. Basic earnings per share were 31 cents and, before goodwill and exceptional charges, were 36 cents. Volume at 468,000 TEU was flat compared with both Q3 2001 and Q4 2000. However, average freight rates were 6% lower than Q4 2000 and 4% down from the Q3 2001. Cash from operations before exceptional charges was $44mn in the quarter or 55 cents per share. Net income available to common shareholders for Q4 2001 was $25mn compared to $40mn in the same period in 2000.

For 2001 as a whole, container carryings at 1.84mn TEU were slightly higher than 2000, while the average freight rate was up 1%. Operating income for the year was $139mn before exceptional charges compared with $164mn in 2000. Basic earnings per share were 92 cents and before goodwill and exceptional charges were $1.57. Cash from operations before exceptional charges was $188mn or $2.36 per share compared with $174mn or $2.19 per share in 2000. Return on capital employed for the year was 13.1% compared to 21.1% for 2000, well above CP Ships' cost of capital. Net income available to common shareholders for 2001 was $73mn compared to $133mn in 2000.

During 2001 CP Ships achieved annualised cost savings of more than $120mn by replacing chartered ships with owned ships and through charter renewals, organisational changes and other operating efficiencies. These savings were offset by increased costs from new services based on slot charters. The ship fleet was reduced from 84 on 30 September to 78 on 31 December in response to market conditions.

Given increasingly difficult market conditions and compared with expected industry returns, performance in 2001 was strong. Global containership capacity increased by 12% while container trade growth slowed significantly mainly due to the economic recession in the US and slow growth in Europe. Trade conditions continue to deteriorate with low economic growth forecast through at least the first half of the year.

In the Asian market, for the fourth quarter, continuing losses in the Asia-Europe services which started in 2001, led to an overall operating loss of $13mn compared with a profit of $4mn in the same quarter 2000. Average freight rates declined 6% from the Q3 with more stable freight rates in the India services partly mitigating sharper declines in the Asia-Europe services.

The operating loss of $13mn in 2001 compares with a $20mn profit in 2000. Although volume increased more than 50%, operating costs were significantly higher due to the start of the new Asia-Europe services where competition from excess trade lane capacity affected freight rates significantly.