NYK Line, MOL and “K” Line, which combined forces April 1 as the Ocean Network Express (ONE), reported a combined loss of $136.6 million in their last fiscal period as separate entities.
Japan’s three largest ocean carriers — Nippon Yusen Kabushiki Kaisha (NYK Line), Mitsui O.S.K. Lines Ltd. (MOL) and Kawasaki Kisen Kaisha Ltd. (“K” Line) — faced some uneven seas during their fiscal year 2017, which ended March 31.
The latest financial results are the last to be reported after the three firms officially joined their container shipping divisions, including worldwide terminal operations outside of Japan, to create a new operating company called the Ocean Network Express on April 1.
The three companies entered into the agreement on Oct. 31, 2016, and on July 7, 2017, established a new holding company in Tokyo, dubbed Ocean Network Express Holdings Ltd., and a new operating company in Singapore, referred to as Ocean Network Express Pte. Ltd.
According to ocean carrier capacity database BlueWater Reporting’s Carrier Ranking Report, the recently combined ONE currently has an operating fleet capacity of 1.39 million TEUs, ranking it as the sixth-largest container carrier worldwide.
But despite each carrier reporting increases in top-line revenue for FY 2018, NYK and “K” Line turned a profit while MOL took heavy losses.
Although each reported rising container transport volumes, freight rate growth was limited by the introduction of additional vessel capacity as carriers received and deployed new containerships.
NYK
Faring the best of the former “Big 3” carriers, NYK recorded profits attributable to owners of the parent of 20.2 billion Japanese yen (U.S. $97.7 million) for the 12 months ending March 31, a marked turnaround from a loss of 265.7 billion yen for the same period a year earlier.
Earnings per share (EPS) stood at 119.57 yen compared with a loss of 1,572.35 yen per share during FY2016, as consolidated revenues rose 13.5 percent year-over-year to 2.18 trillion yen.
NYK’s liner trade segment posted an recurring profit of 10.8 billion yen, up from a loss of 12.7 billion yen, on revenues that surged 18 percent to 691.4 billion yen compared with the previous year.
“In the container shipping market, shipping traffic was brisk along transpacific routes, but an upswing in spot freight rates largely came to a standstill due to the impact of growing shipping capacity, which was caused by the production of new ultra-large container ships,” the firm said. “Shipping traffic picked up along European shipping routes and the balance between supply and demand improved in the first half of the fiscal year, but shipping traffic slowed down overall in the second half.
“NYK Line and four other companies began offering new services as THE Alliance during the fiscal year under review,” it added. “Under THE Alliance, efforts were made to boost the efficiency of various services while maintaining and enhancing their user-friendliness and competitiveness. The NYK Group worked to limit fleet and operating costs by continuing efforts to boost cargo-loading efficiency, switch to new highly fuel-efficient vessels with capacity of 14,000 TEU, and optimize vessel assignment and economic performance in accordance with the circumstances of shipping routes.
“By implementing measures for cutting freight costs, particularly through the efficient operation of container ships, the group improved profitability and its resistance to market fluctuations,” NYK said. “Meanwhile, overall handling volume at container terminals in Japan and around the world increased year on year. Owing to these factors, results in the Liner Trade segment as a whole improved substantially, with the segment posting higher revenues and a profit compared with a loss in the previous fiscal year.”
And NYK is expecting this improved profitability to continue into the next fiscal year, projecting earnings attributable to the parent company of 29 billion yen for FY 2018 despite an expected 17.3 percent drop in earnings from the liner segment reporting under the ONE joint venture.
“K” Line
Not far behind NYK, “K” Line recorded profits attributable to owners of the parent of 10.9 billion yen (U.S. $184.7 million) for the fiscal 2017 year, compared with a 139.5 billion yen loss for the prior 12-month period.
Basic EPS stood at 111.18 yen per share compared with a 1,488.23 yen per share loss the previous year on operating revenues that grew 12.8 percent year-over-year to 1.16 trillion yen.
In its containership division, “K” Line recorded a segment profit of 3.4 billion yen, up from a loss of 31.5 billion yen in FY2016 on operating revenues that jumped 15.3 percent to 598.5 billion yen.
“K” Line’s overall container handling volumes were relatively flat compared with the previous year, with demand increases of 10 percent on the Asia-Europe trade, 3 percent on intra-Asia lanes and 2 percent in the transpacific trade between Asia and North America. That growth was offset in part by an 8 percent decline in north-south volumes.
“Although the supply-demand balance did not improve in earnest, freight rates continued to recover,” the company said of the container shipping segment results. “Although freight rates were lower than the initially expected level, they were higher than the level in the previous year. Overall, the company’s containership business recorded year-on-year growth in revenue, and its losses shrank despite recognizing startup expenditure of integration of the three Japanese shipping companies’ containership business.”
Looking ahead to FY 2018, “K” Line is projecting a 32.6 percent drop in profits to 7 billion yen on a 35.1 percent decline in revenues to 754.5 billion yen due to the separation of its liner shipping segment.
MOL
The script was completely flipped for MOL, however, which posted a loss attributable to owners of the parent company of 47.4 billion yen (U.S. $446 million) for the 2018 fiscal year after managing to eke out a 5.3 million yen profit in FY 2016.
Net loss per share stood at 396.16 yen compared with a 43.95 yen per share profit the year before, as MOL’s revenues grew 9.8 percent year-over-year to 1.65 trillion yen.
In its containership division, MOL narrowed its segment loss from 32.8 billion yen in FY 2017 to 10.6 billion yen during FY 2017 as segment revenues surged 20.7 percent to 751.6 billion yen.
The company said results were boosted by stable expansion in the global economy, with continued steady increases in personal and corporate spending in the United States, Europe, China and Japan.
“In the containership freight market, there were observable improvements in the supply and demand environment on Asia-North America, Asia-Europe and Asia-South America routes, which facilitated a recovery in the spot freight rates,” MOL said. “In particular, on the Asia-East Coast of South America routes, cargo volumes recovered sharply as the Brazilian economy showed signs of pickup, and spot freight rates began sharply rising from the beginning of spring and stayed strong throughout the fiscal year.
“The spot freight market on the Asia-North America routes, although slumping in the first quarter, rose over the summer period with cargo volumes for this fiscal year proceeding at a record high pace,” the firm added. “Over winter, the increased pressures of vessel supply caused market weakness, but the market once again began rising during the busy period before the Chinese New Year in February. On the Asia-Europe routes, although there was a significant recovery in cargo volume, this rise was picked up by new deployments of large-sized vessels at each liner company, causing the spot freight rates to remain relatively stable over the entire year.
“There was also a notable increase in backhaul cargo volumes to Asia,” it said. “On the Asia-East Coast of South America routes, cargo volumes recovered sharply as a result of a pickup in the Brazilian economy, and spot freight rates, which sharply rose from the beginning of spring and sometimes spiked largely, made a significant contribution to improving profitability. Needing to make use of the increased space provided by the launches of large containerships, the division energetically secured annual contracts in the beginning of spring, thereby limiting the amount of profits received from spot freight rates, which had risen from summer onward.”
For FY 2018, MOL expects a profit attributable to the owners of 30 billion yen on 1.13 trillion in revenues, a 31.6 percent decline from FY 2017.