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Shipping and logistics group Orient Overseas (International) Limited (OOIL) has reported a 24 percent drop in first-half profit following a rise in bunker prices, higher terminal and transportation costs and lower earnings from its cash holdings.

Total operating profit for Hong Kong's largest container line during the first six months of 2008 was down to $227.6 million from $298.4 million a year ago, according to a statement released today. The company said the reduction was principally a result of lower earnings in relation to the Group’s liquid assets.

Meanwhile, profit attributable to shareholders for the first half of the year was US$158.3 million.

OOIL's container transport and logistics operations had an improved result year-on-year, with a 1.7% increase in operating profit to US$208.9 million for the first half of 2008 compared to the equivalent 2007 period.

Speaking about the results, Mr C C Tung, Chairman of OOIL, said, “The first half of 2008 has been a further positive period for the Group, with our core business of Container Transportation and Logistics achieving an improved profit for the period compared to the first half of 2007.”

Group turnover for the six months ended 30th June 2008 was US$3,203.7 million, an increase of US$689.5 million or 27.4% as compared with the corresponding period of 2007.

The improved revenue was, however, largely matched by increased costs arising from high oil prices. High energy prices were felt both directly through higher bunker fuel costs and indirectly through higher terminal and third-party transportation costs.

The average bunker price paid for the first half of 2008 was US$502 per tonne, which was 64 percent higher than the US$306 per tonne recorded in the same period of 2007. Whilst savings in consumption have continued to be achieved through revision of sailing and operational programs such as slow-steaming, bunker fuel now represents 79 percent of voyage costs versus 70% during the first half of 2007.

Mr Tung noted that “while higher bunker fuel costs are increasingly mitigated through separate bunker surcharges and operational adjustments, base freight rates need to adjust to cover the less transparent increase in other operating costs. The introduction of a separate floating bunker charge into a majority of contracts for Trans-Pacific services during the 2008 contract negotiations is a positive development in achieving improved bunker cost recovery.”

Tung said he expected the second half of 2008 to be considerably more challenging than the first half due to increased industry capacity, the impact on demand growth rates of slowing US and global economies, and ongoing cost pressures from high energy prices

“A clearer outlook for global economic growth in 2009 will develop over the remainder of the year, especially as to whether economic conditions in the United States will stabilise next year or an even lower rate of growth is experienced than is forecast for this year. In the face of this uncertainty, we do remain exposed to the risk of deterioration in freight rates as these are market driven and vulnerable to adverse swings in sentiment,” Tung said.