Neptune Orient Lines (NOL), the Singapore based container shipping and logistics company, has announced a weak set of annual results with operating profit (EBIT) down 55% to $401m and revenue flat at $7.2bn. Tax and one-off items affected profits leaving income at $364m.

The principal reason given for the fall in profitability was the high cost of fuel and the fall in container freight rates. Utilisation rates remain high at 96%, suggesting that NOL is concentrating on maintaining margins rather than buying market share. The management emphasised that the whole industry has suffered badly from the conditions in the container market and that NOL's results are by no means the worst.

Addressing analysts, the new President of NOL, Dr Thomas Held, was at pains to point out that NOL has substantial business beyond container shipping, such as its container terminal activities in East Asia and North America. However the company's profits are still determined by the cyclical container freight rates in the Pacific, with NOL lacking the exposure to exotic trades that might improve its performance over the cycle.

NOL is looking to expand its fleet with big new post-panamax ships and is expecting to increase its overall capacity by 10%, concentrated in intra-Asia and to US East coast.

More worrying and less understandable is the low growth and profitability of APL Logistics. Accounting for 17% of the sales of the business, APL Logistics EBIT was down 5% at $54m whilst revenues were up 2% at $1.3bn. The company said that it is in the process of re-orientating its logistics business although it is unclear what the implications of this are. However Dr Held mentioned that the company was looking to increase the productivity in its warehousing operations. Bearing in mind the very vigorous growth across the Pacific, particularly in sectors such as automotive components and clothing which APL specialises in, it is difficult to understand why APL Logistics is growing so slowly. The company did mention that it wishes to "fill gaps" in its geographical coverage, with this possibly suggesting that it may be looking to make acquisitions, however Dr Held refused to comment on this.

As Dr Held pointed out, the prospects for container rates are not brilliant with demand remaining high but capacity supply of new container shipping even stronger. This is combined with rising container terminals and land transport costs as they struggle to cope with a shortage of capacity.

NOL is looking to position itself as a high quality, low cost Pacific container specialist possibly benefiting from the failure of smaller less efficient rivals. But with businesses as large as Maersk to compete with, this is going to be a tough game to play.