Japanese shipping behemoth Mitsui O.S.K. Lines (MOL) (JPX: 9104) increased operating profit and “profit attributable to owners” but its revenues took a huge dive in the first quarter of the Japanese financial year.
In the three months April to June 2019, MOL recorded revenue of 283,147 million Japanese yen (US$2.23 billion). That’s a decline of about 7 percent from the figure of 304,434 million yen reported in the corresponding period of 2018.
The company converted currencies at a rate of 107.79 yen to one U.S. dollar based on the June 30,2019 figure. Japan’s financial year starts in April and ends the following March.
However, on the brighter side, the company’s operating profit increased by a whopping 85.7 percent to 6,854 million yen (US$63.59 million) and the profit attributable to owners swung from a loss of 1,682 million yen to a profit of 12,273 million yen (US$113,860,000).
Dry bulk shipping
Year-on-year dry bulk revenues increased by 1.9 percent to stand at 67.2 billion yen with ordinary profits of about 2.4 billion yen. MOL noted that the international dry bulk market had weakened due to supply disruptions in Brazil but that alternative iron ore shipments increased, with recovery under way after mid-April. Rates rose from US$3,000/day at the beginning of the year to about US$19,000/by the end of April. However, the market fell back from June and “generally hovered” at US$10,000/day.
”Under such market conditions, the dry bulk business stably fulfilled long-term contracts for iron ore carriers, wood chip carriers and other vessels, also steadily implemented contract extensions and recorded an ordinary profit, albeit slightly lower year-on-year,” MOL noted.
Looking forward, MOL expects better charter rates as some ships will be taken out of supply for dry-docking to install sulfur scrubbers to comply with IMO 2020.
Energy transport shipping
MOL’s tankers and LNG business saw an increase in revenues of 4.4 billion yen, which represents a 6.7 percent increase, from 66.6 billion yen in April-June 2018 to 71.1 billion yen in April-June this year. Ordinary profits nearly doubled from 3.1 billion yen to six billion yen.
MOL noted that there has been a sudden rise in the market rate “caused by the increasing instability in the Strait of Hormuz.” However, the company said that vessel supply-demand dynamics remained in an “adjustment phase,” which reflected both a seasonal decrease in demand for oil and a maintenance period for oil refineries in Asia. Product tankers experienced increased shipments for a while but freight rates “struggled to rise” due to a large number of newly built ships entering the market.
“Under these conditions, ordinary profit improved year-on- year thanks to ceaseless efforts to improve operating efficiency through pool operations and cut costs, in addition to the stable fulfilment of long-term contracts and steady implementation of contract extensions,” MOL said.
It added that the LNG business performed “solidly” and generated stable profit mainly through long-term charter contracts.
Looking forward, MOL believes that there will be growth in tonne-miles as OPEC has agreed to extend oil cuts. That will likely lead to the purchase of alternative supplies such as shale oil from the Atlantic basins, which will mean longer voyages. And that means higher freight rates. Meanwhile, just like in the dry bulk market, MOL is anticipating that tankers will have to be temporarily taken out of the market so that sulfur scrubbers can be installed during dry-docking.
”Consequently, although the adjustment phase will continue during the second quarter, rates are expected to firm up from the second half,” MOL said.
Product transport
MOL describes its general and break bulk business as “product transport.” That’s a somewhat unfortunate label as “product” in the ocean shipping sense usually refers to the products of oil (e.g. gasoline). However, here, “product” means general cargo.
This segment did not do as well, with a 26 billion yen drop from the corresponding period last year to a 119.5 billion yen revenue figure recorded for April to June 2019. That’s a decline of about 17.9 percent. However, despite a drop in revenues, the company recorded an upswing in ordinary profit as the business division moved out of the red and into the black. In the prior corresponding period, the company reported an ordinary loss for the product transport business of 5.6 billion yen. During April to June 2019, it reported an ordinary profit of 2.7 billion yen.
There are a wide range of businesses in MOL’s product transport business including car carriers, coastal roll-on roll-off and ferries. The company is also a participant in the Ocean Network Express. There is little detail here about ONE as FreightWaves reporter Mike Angell has provided an in-depth report.
In brief, ONE improved its liftings “significantly” due to the stabilization of services. Spot freight rates on the Asia-North America lane remained “firm” but cargo movements were “slightly sluggish.” On the Asia-Europe lane, overall demand remained “comparatively strong” but freight rates were weak due to a supply-demand imbalance.
Looking forward, demand for containerized cargo carriage will likely decline on the trans-Pacific, Asia-Europe and intra-Asia routes. But, the company says, profitability will likely improve throughout the year due to product optimization.
Car carrier volumes were down because of a decline in shipments from Europe to Asia due to tighter emission standards in China. But ordinary profits improved year-on- year.
Looking forward
MOL has downgraded its anticipated revenue figures for the first half of the Japanese financial year. Initially, it envisaged revenues of 595 billion yen. However, as of the date of the current first quarter financial results, it has dropped that figure down by 2 percent to 583 billion yen. That said, the company is feeling bullish on profit; it has increased its first half forecast operating profit figures from 13 billion yen to 15 billion yen. It has also increased its forecast “profit attributable to owners” from 25 billion yen to 27 billion yen.
MOL provides its financial statements in accordance with Japanese generally accepted accounting principles.
Tokyo-headquartered MOL has 461 companies within its group, employing about 8,941 staff. It operates about 769 ships which, together, have about 57,011,000 deadweight tons. Deadweight measures the carrying capacity of an ocean-going ship in metric tonnes; a metric tonne is equivalent to 2,204.6 U.S. pounds.