Ports of Auckland enjoyed strong earnings over the first half but the company faces challenges in the second half as the global shipping industry suffers multi-billion dollar losses thanks to a surplus of supply over demand.
The Auckland Council-owned company, which operates New Zealand's biggest import port, said its net profit came to $31.6 million - up 9.5 per cent on the same period a year earlier - despite revenue falling by 2.2 per cent to $106.1 million.
Ports of Auckland declared a dividend of $25.9 million for the half year, up from $25.5 million for the same period last year and representing 81.9 per cent of the after-tax profit for the period. The profit represents a return on equity of 10 per cent, just short of the council's goal of a 12 per cent return on its investment.
Downward pressure on earnings is expected in the second half - traditionally the less profitable of the halves - as the world shipping industry goes through a severe downturn and faces the prospect of US$5 billion ($7.5 billion) in losses.
The big container shipping lines have been building larger ships in an effort to reduce unit costs, while trade growth has been low.
"We are delighted with the result, but it's been anything but plain sailing," chief executive Tony Gibson said. "It's tough out there for our customers," he said. "There is too much supply and not enough growth."
The world's biggest shipping company, Maersk, this month reported a US$2.5 billion loss in its fourth quarter from a profit of US$189 million in the same year-ago period.
Late last year, CMA CGM spent US$2.4 billion on a controlling stake in Singaporean container line APL and two big Chinese shipping giants, COSCO and China Shipping, have joined forces. The Baltic Dry Index, a shipping benchmark, this month hit its lowest point since the index started in 1985.
In its result, Ports of Auckland said container volume was down 3.3 per cent on last year to 474,613 TEU (20-foot equivalent units) and breakbulk volume - including vehicles - was down 2.8 per cent on last year's at 2.995 million tonnes.
In notes to the accounts, Ports of Auckland said it had agreed to pay $23 million for land North of Hamilton to develop a freight hub, which it says will complete its network across the North Island in a deal announced in January.
Ports of Auckland said lines are looking to cut costs and are shedding staff, rationalising routes and undertaking mergers and take-overs. They are also looking to ports to reduce costs.
With Maersk having tied up a large share of export volumes as a result of their arrangement with Port of Tauranga and the Fonterra-Silver Fern Farms joint venture Kotahi - there was fierce competition for inbound cargos, the company said.
"This has resulted in route rationalisation with some lines allocating vessel space to import cargoes for Australia rather than competing for New Zealand imports, and some lines leaving the New Zealand trade altogether," Ports of Auckland said.
This has contributed to a 3 per cent decline in the port's volumes in the year to date. "This struggle by lines to secure market share will continue into the second half and beyond," the port said.
Revenue was down 2.2 per cent to $106.1 million, compared to $108.5 million in the same period last year. Despite the revenue decline, profit was up due to lower costs, primarily as a result of the timing of spending on repairs and maintenance.
Over the six months, Ports of Auckland announced that it was establishing a Bay of Plenty freight hub in Mount Maunganui, opened a new cold store for Polarcold in Wiri and started on construction of a cross-dock at Wiri.
Results for six months to December 31
• $31.6m profit, up 9.5% on previous year
• 785 total ship calls, up 6.2%
• 31 cruise ship calls, up 4
• 124,000 car volume, up 4.4%