KUCHING: Hubline Bhd has decided to exit from its core container shipping business to stop years of losses and concentrate on the profitable break bulk cargo transportation.
The Sarawak-based company said the decision, which was made following a detailed deliberation and review of all relevant factors, was due to depressed freight rates and overcapacity of the industry.
Hubline’s fleet of container vessels ply between ports in Malaysia, Thailand, Vietnam, Hong Kong, Indonesia, Papua New Guinea and other countries. These vessels are expected to cease operations by September this year.
In the past four years, Hubline said the container shipping division had contributed an average of 79% to the group’s overall revenue but with losses, therefore forcing the board of directors to reassess the group’s financial and operational strategies.
“Continued participation in the container shipping market without immediate turnaround in the industry landscape would eventually harm our profitable operations of the break bulk division.
“The group’s break bulk division has the potentials to develop and grow without being challenged by the pressure of subsidizing the container shipping division,” it added in a filing with Bursa Malaysia.
Hubline said the container liner industry had long been suffering since the economic crisis and overcapacity in the market was still evident.
The global liner industry, according to the company, is struggling with the depressed freight rates to meet operating costs.
“The global trade patterns are fast changing which is challenging to our operating model. Consequently, competition for cargo is still very fierce and operators are struggling to stay profitable with the depressed freight rate environment.”
The company said the exit process from container shipping would involve withdrawal from various trade routes, termination of related service and operational contracts as well as the disposal of container shipping related assets.
“Subject to market conditions during the exit process and the company’s successful execution of its exit plans, the estimated one-off costs to the income statement are expected to be approximately RM350mil for financial year ended Sept 30, 2015.
“However, over the long term, as the group concentrates on its profitable break bulk division, the board anticipates a positive impact to the group’s earnings,” it added.
Hubline said upon exiting the container shipping operations, the company would become an “affected listed issuer” and therefore required to comply with guidelines under Practice Note 17 (PN17).
Meanwhile, Hubline obtained a restraining order under Section 176(10) of the Companies Act,1965 from the High Court here on Feb 18 to facilitate the restructuring of its shipping operations.
It said the order was also to enable the company to focus its efforts on formalising a proposed scheme of arrangement for creditors.
Hubline shares were heavily traded yesterday, falling to a low of 2.5sen from the previous close of 3.5sen.