A pending US court battle preventing Bermuda Container Line Ltd. (BCL) from moving to a more competitive port location has hit the shipping company's results.

Even though the company's operating earnings increased by four percent to $2.16 million, profits declined 16 percent to $1.45 million in 1997 compared to 1996.

Profits were offset by a further provision of $715,000 for port relocations costs. The company made provisions of $350,000 in 1996. BCL operates the MV Oleander container ship transporting cargo from New Jersey to Bermuda.

The company also owns half of Somers Isles Shipping Ltd. which operates a freighter service from Florida to Bermuda.

BCL is attempting to relocate to a port facility it bought in Salem, New Jersey from nearby Port Elizabeth but has been blocked by a legal battle with US dock workers and the New York Shipping Association, an employers' organisation. The International Longshoremen's Association doesn't want BCL to move to Salem where the union is not represented.

The employers' association has said BCL would be in breach of contract and would be subject to damages of $600,000 per voyage if it moved to Salem. In response, BCL filed a suit against the association and the New York Shipping Association.

The local freight carrier's management has said previously that unless it is allowed to move to the less expensive port facility at Salem, the company could succumb to fierce competition on the New York to Bermuda run. The association claims BCL is bound under contract to only work from ports where its members are represented, a claim upheld by a Port of New York local industry committee in 1996.

A US court has granted a hearing regarding the dispute with the dock workers association and the New York Shipping Association, but that remains pending.

The US District Court for the Southern District of New York denied the company's's motion for a summary disposition in December, 1997 and scheduled a trial for March.

The union and the shipping association in turn won postponement of the trial by filing a motion for summary adjudication.

"That motion has been fully briefed and the parties are now awaiting either a decision from the court or at least a schedule for oral argument on the motion or for trial,'' BCL stated in its annual report.

"There is no way to predict what the court will do or when it will do it, but the expectation of the attorneys is that the court will decide the summary judgment motion within three or four more months and then, if the motion is not granted, will allow the case to go to trial quickly.'' The company stated its lawyers "remain convinced'' BCL will win the case at trial or on appeal.

"Although the action is slow and expensive, the company can afford and is determined to persevere and to secure the right to call at non-ILA facilities with all the considerable advantages to BCL entailed in such an operation,'' the company stated.

The company set aside the additional $715,000 to cover expected port relocation costs made up of an increase in reported pension liabilities and estimated additional legal fees.

BCL is a member of the New York Shipping Association and through it makes contributions to a multi-employer pension plan. BCL noted it will be liable for $2.57 million of its share of the unfunded liability of the pension plan.

In total the company has made provisions of $3.87 million, which includes the additional $715,000, since 1996 for estimated cost of relocation and legal expenses.

Cash flow for the year was negative due to investment in the Salem port facility and the purchase of new reefer containers by Somers Isles Shipping.

The company now fully owns Marine Terminal Holdings Inc., a subsidiary company set up to hold the investment in the Tilbury Road terminal in Salem.

The company completed negotiations to fully take over the terminal in 1997.

Over 1996 and 1997 BCL spent about $3.8 million on buying the port facility.

Marine Terminal had an operating loss of $267,000 for the year, made up of depreciation and amortisation, insurance and taxes, the last two items being actual cash expenses.

"The company has deliberately not used any debt to finance recent capital expenditures,'' BCL stated.

BCL turns in lower earnings "The fiscal management of the company has been kept conservative during this period of uncertainty created by the legal battle with the ILA and NYSA (the two New York associations).'' Meanwhile, continuing operations generated a cash flow of $2.46 million, a 25 percent increase over 1996. The BCL New Jersey to Bermuda service revenue increased about five percent or $999,000 over 1996. While volume and revenue increased, market share decreased.

"The increased import cargo volume was due to growth in the local Bermuda economy,'' BCL stated. "The inability to relocate to the Port of Salem did have a negative impact on the company. Market share in the key and remunerative US origin refrigerated container trade did decline by three and a half points and certain customers who had supported the Line from many years did switch to the competitor line which offers a service from Salem, N.J.'' The company noted the increase in construction materials and car shipments as key contributors to growth in cargo volume. Operating earnings increased $443,000, or 47 percent, to $1.38 million due to growth in volume and cost control.

The Somers Isles service had a nine percent decline in net earnings with BCL's share standing at $909,000.

BCL noted it increased dividend payout in 1997 by two cents a share, representing a nine percent increase. The company's directors also noted the market value of BCL's shares traded at below book value.

"A substantial amount of earnings over the last few years have been reinvested in the company without a concomitant return to the shareholders.

Once the uncertainty over the port relocation has been resolved the directors will look into this issue to try and find ways to improve the return to shareholders.'' BCL last traded at $3.50 in March, 79 percent of per share book value.