Yang Ming losses doubled in 2016

Yang Ming losses doubled in 2016

Taiwanese ocean carrier Yang Ming Line nearly doubled its losses in 2016 from 2015, reporting a $493.6 million hit last year on reduced revenue due to weaker pricing.

The report of deep losses comes as the Taiwanese government pressures the carrier to reform or face a considerable shakeup. Yang Ming is hardly alone in reporting 2016 losses, after Maersk Line, CMA CGM, Hapag-Lloyd, and Orient Overseas Container Line (OOCL) reported a total loss of $1 billion.

The company’s revenue fell 9.5 percent year-over-year in 2016 to $3.8 billion. Turnover was also inadequate to cover Yang Ming’s operating expenditure of $4.1 billion.

The carrier blamed its poor performance to chronic overcapacity, soft demand, and an ongoing fleet renewal. The carrier has entered into several long-term time charter agreements with various shipowners and shipyards. The company in 2015 and 2016 received eight container ships, each with capacity for 14,000 20-foot-equivalent units, from Seaspan under 10-year time-charters, with an additional vessel expected to be delivered in 2017.

In light of its recent losses and intensified concerns after Hanjin Shipping collapsed in August, Yang Ming has unveiled a recapitalization plan, in which the government will increase its roughly one-third stake in the company. In addition, the company said in January that it could draw on a $1.9 billion state fund should it need financial assistance.

Yang Ming was last profitable in 2013, when the carrier posted a profit of $92.2 million. As of last fall, the carrier had the most leveraged balance sheet of all the major carriers, with net gearing totaling 437 percent, according to Drewry Financial Research Services. That’s well above the industry average of 124 percent and nearly five times that of fellow Taiwanese carrier Evergreen Line.

Lawmakers in the ruling Democratic Progressive Party have suggested to the Ministry of Transportation and Communications that Yang Ming should be merged with Taiwan International Ports Corp to streamline resources and lower costs.

Yang Ming’s financial challenges have reinvigorated speculation it would merge with its compatriot Evergreen; however, Yang Ming Chairman Bronson Hsieh in early November rejected that idea, saying it has no plans to do so and its partial state ownership puts mergers off the table.

Yang Ming has not given an indication of just how much of the company will be owned by the government, saying only that “it is also anticipated that the recapitalization plan will result in a larger percentage of government owned and controlled interest in Yang Ming, well beyond the current approximate 33.3 percent held by the Ministry of Transportation and Communications of Taiwan.”

In a customer advisory announcing the plan, Yang Ming said the line was not in default on any obligations. “Yang Ming has never approached its creditors with any demands to restructure any part of its debt, and Yang Ming does not have any intention to do so going forward.”

In another bid to ease shippers’ minds, Yang Ming and other THE Alliance members — including Hapag-Lloyd, ‘K’ Line, MOL, and NYK Line — introduced in December new industry safeguards, including an emergency fund, to help recover stranded cargo if one of the members collapses.

While THE Alliance’s failsafe plans received a warm welcome from the shipping community and maritime regulators, other carrier alliances characterized such contingency plans as indicators of financial instability and the 2M and Ocean alliances said earlier this year they had no plans to adopt similar emergency funds.

Evergreen has yet to post its consolidated 2016 financial report, but it is not expected to fare considerably better after registering a 15 percent year-over-year decline in the first nine months of the year.

In the meantime, intra-Asia carriers like Wan Hai Lines, also listed in Taiwan, have been posting stronger performances, even as profits have come under pressure due to fierce competition.

Wan Hai, the largest intra-Asia focused carrier and therefore a bellwether for the trade, reported cumulative profits of $11.5 million for the first nine months of 2016, still a profit but down 91.7 percent year-over-year. The company has not as yet announced full-year earnings for 2016.