Ocean carriers MOL, NYK and “K” Line all reported losses in their container segments and lower revenues year-over-year for the first fiscal quarter, which ended June 30.
Japan’s three major shipping conglomerates – MOL, NYK and “K” Line – today reported their earnings for the first quarter ending June 30.
All three companies, which have a fiscal year that runs from April 1 through March 31, reported year-over-year decreases in revenues for the quarter.
In addition, the carriers experienced losses in their container segments, noting that container shipping rates were depressed from the flood of new, large ships entering the market, while dry bulk freight rates also remained depressed.
NYK and “K” Line posted overall losses for the period, while MOL reported sharply lower profits.
MOL
MOL postedprofits attributable to owners of the parent of 1.4 billion yen in the first fiscal quarter of 2016-17 compared with 12.8 billion yen in the same period a year ago. Revenues totaled 360 billion yen in the first fiscal quarter of 2016-17, down from 449 billion yen in the first quarter of 2015-16.
MOL said revenues in the containership unit reached 147 billion yen compared with 195 billion yen in the same period last year.
“The ordinary loss in the containership segment deepened year-on-year, despite efforts not only to reduce vessel costs through business structural reforms, and improve capacity utilization rates on both dominant and return legs of the Asia-North America and Asia-Europe routes through stronger sales capabilities, but also to cut operation costs by reducing the expenses of positioning empty containers through improved yield management, and continuously to scale down the space supply,” MOL said.
On Asia-North America routes, the spot freight market fell considerably from a decline in cargo volumes from Asia. MOL said one-year contract rates between Asia and North America also significantly declined.
Meanwhile, on Asia-Europe routes, the freight market is still low, despite the upward trend as a counteraction to last year’s record-low freight levels.
MOL noted there was a “remarkable” increase in rates from Asia to South America when carriers reduced capacity, even though volumes remained low because of the economic downturn in Brazil.
In the car carrier business, transportation of finished cars to the U.S. and Europe remained firm, but weakened to resource-producing countries and emerging countries.
NYK
Meanwhile, NYK reported a recurring loss of 9.9 billion yen (U.S. $96.6 million) in its first fiscal quarter, compared with recurring profits of 21.5 billion yen in the first quarter of the prior year. In the same periods, the loss attributable to owners of the parent totaled 12.8 billion yen in the first fiscal quarter this fiscal year compared with profits of 43.1 billion yen for the first quarter of the last fiscal year when NYK posted extraordinary income from the sale of Crystal Cruises, its North American-based cruise ship business.
Revenues in the first fiscal quarter this year totaled 471 billion yen, 20 percent below the 589 billion yen recorded in the first fiscal quarter of last year.
“In the global shipping industry, the container shipping market was extremely sluggish as growth in freight rates stalled due to an oversupply of tonnage resulting from the steady production of ultra-large container ships,” NYK said.
The company’s liner business experienced a recurring loss of 8.8 billion yen for its first fiscal quarter, compared with profits of 3.9 billion yen a year earlier. Revenues from liner shipping fell 23 percent year-over-year to 141.4 billion yen.
“In the container shipping market, spot freight rates for transpacific routes decreased,” NYK said. “In that context, negotiations for the renewal of, annual contracts in May ended with poor conditions, negatively affecting profitability.”
NYK added, “Market conditions surrounding European shipping routes remained harsh as supply continued to exceed demand and confusion lingered in the European economy. Among other shipping routes, while market conditions picked up in some areas of Central and South America, routes in Asia and Oceania were negatively affected by sluggish markets.”
Although the primary routes NYK handles as a member of the G6 Alliance were not reorganized during the quarter, NYK said that elsewhere, in response to the market, it has “rationalized its service loops according to demand, reorganized routes in Oceania and other regions to make them more efficient, and suspended service for some unprofitable routes.”
NYK said it benefited from lower fuel costs and reduced operating costs by upgrading vessels to improve fuel efficiency, while continuing measures to switch over to new 14,000-TEU containerships, which have a hull form for improved cargo loading rate and a fuel efficient engine.
To improve its ability to deal with sluggish market conditions, NYK said it was “taking exhaustive measures for optimizing the economic performance of its shipping fleet, such as chartering ships for short periods, deploying larger ships to raise shipping efficiency, allocating vessels according to their respective service characteristics, and more efficiently allocating vessels to eliminate unnecessary costs.”
In addition, NYK said it “strove to raise profitability and increase total cargo volume by enhancing management methods designed to enable higher cargo volume according to goals set for each country where it operates, and by targeting certain types of cargo that can be shipped more efficiently. Regrettably, the efforts to reduce costs and improve profitability, described above, did not generate enough results to offset the effects of the sluggish market, and, consequently, income fell considerably short of expenses.
“This was also despite the steady performance of container terminals operated in and outside Japan, which increased overall handling volume year on year.”
Meanwhile, in other segments, NYK expressed how operating conditions were very challenging in the dry bulk shipping market, as the lingering gap between supply and demand did not significantly narrow, despite the scrapping of aging vessels.
“Similarly, oversupply of all types of vessels grew markedly worse in the liquid transport market as a result of new deliveries of ships,” NYK said. “Meanwhile, the NYK Group’s non-shipping businesses, particularly air cargo transportation, faced worsening market conditions and the effects of the ongoing appreciation of the yen, while the logistics segment performed well overall.”
“K” Line
“K” Line posted a loss attributable to owners of the parent of 26.8 billion yen in the first quarter of fiscal year 2016-17 compared with profits of 10.2 billion yen for the same quarter last year.
Revenues tumbled down to 245 billion yen from the 336 billion yen a year prior.
“K” Line said its containership segment experienced a 12.3 billion yen loss during the quarter compared to profits of 4.1 billion yen last year. Containership revenues totaled 122.2 billion yen in first quarter of fiscal year 2016-17 compared with 171.7 billion yen in the same period a year earlier.
The group’s average freight rate fell below previous year levels across all routes, which “K” Line attributed to the global deterioration of the supply-demand balance.
“K Line” said it enhanced its competitive strengths by launching large vessels, forming alliances, withdrawing from unprofitable routes and cost cutting initiatives, but still recorded lower revenues and a loss.
The carrier also reported its logistics business was also “somewhat weak” when compared to the same period a year earlier.
In the car carrier segment, business declined 5 percent year-over-year.
Forecasts
With the difficult first quarter behind them, all three carriers have drastically lowered their original forecasts for the full fiscal year.
MOL said it now expects net profits of 15 million yen on revenues of 1.49 trillion yen instead of a net profits of 20 million yen on revenues of 1.52 trillion yen.
Looking ahead, MOL said that in the container market, it expects certain increases in the spot freight market over the summer as a result of the typical annual trends of increased cargo volumes departing from Asia in the latter half of the year for the holiday season. “However, at the same time, we are assuming a continuation of unstable freight markets dues to such factors as the rising level of uncertainty concerning the global economic outlook,” MOL said.
NYK now forecasts a loss attributable to owners of the parent company of 15 billion yen on revenues of 1.99 trillion yen instead of the forecast it made on April 28, in which it anticipated profits of 15 billion yen profit on revenues of 2.18 trillion yen.
“In the container shipping market, the oversupply of new ultra-large container ships is continuing unabated, and a recovery in freight rates will require a certain amount of time,” NYK said. “In the dry bulk shipping market, the pace of the recovery has been slower than previously expected,” said NYK, adding that the yen will be appreciated which will affect exchange rates, and the price of bunker oil will rise slightly.”
“K” Line now forecasts a loss of 45 million yen attributable to owners of the parent on revenues of 1.03 trillion yen instead of a loss of 35 million yen on revenues of 1.1 trillion yen.
