Japanese ocean carrier Mitsui O.S.K. Lines Ltd. attributed the shuttering of its dry bulk business in Singapore and write downs in its container unit to a prolonged downturn in volumes and freight rates.
Mitsui O.S.K. Lines Ltd. (MOL) will shutter the company’s dry bulk shipping unit in Singapore and record impairment losses in its container business as part of “drastic” structural reforms, according to a statement from the company.
The Japanese ocean carrier will take a loss of 179.3 billion Japanese Yen (U.S. $1.6 billion) in its fiscal fourth quarter, which ended March 31, 2016 related to the restructuring.
“The dry bulker market and containership freight rate market remain at levels well below the Company’s previous assumption,” MOL said of the move. “In the Company’s judgment, drastic business structural reforms are essential to cope with this radically different business environment.”
MOL established Singapore-based dry bulk carrier MOLBC in 2012 as part of a similar structural overhaul in an attempt to capture market share for small- and mid-size bulkers in that region. Due to a prolonged sluggish dry bulker market, however, MOL initiated an “urgent review” of its operations, and “decided to implement a major scale-down of the fleet to minimize its market exposure by free vessels, dissolve MOLBC, and transfer its business operations from Singapore to Tokyo.”
The company said it will retain about half of the mid- and long-term chartered-in vessels currently operated by MOLBC in order to meet expected demand for cargo transport, but return the remaining vessels early.
“In a move to reduce the number of surplus vessels in service, the Company decided to reduce its Capesize fleet by about 10% by cancelling some charter-in contracts and selling some vessels it owns,” said MOL. “It has already started returning chartered-in vessels based on agreements with business partners.”
MOLBC is scheduled to suspend its operations by September this year.
As a result of these changes, MOL said it would record an extraordinary loss of JPY 40.5 billion from the early cancellation of MOLBC time charter contracts, a JPY 30.5 billion loss on the transfer of contracts from MOLBC to MOL, a JPY 36.9 billion loss on the sale of capsize bulkers, and an additional JPY 9.5 billion loss on the early cancellation of capesize chartered in contracts.
MOL said its containership business will record respective losses of JPY 60.7 billion and JPY 1.2 billion impairment of asset values and the sale of vessels.
“Considering the prolonged market stagnation and freight rates on many key routes hovering at historic lows, the Company decided to record impairment loss on fixed assets such as all vessels owned by the group companies and write off their book values down to recoverable values based on an examination of the future recoverability of the containership business, and to sell some of its surplus vessels,” the company said.
MOL noted its full-year forecast announced in January has not changed as the JPY 179.3 billion extraordinary loss is already included in its projections for consolidated financial results for the year ending March 2016.
MOL implements ‘drastic’ structural reforms
