Big three Japanese lines curbing their enthusiasm - Reality gaining on the results
The three Japanese shipping companies Mitsui O.S.K. Lines (MOL), Kawasaki Kisen Kaisha (K Line) and Nippon Yusen Kaisha (NYK) are moving away from their optimistic assessment of fiscal 2012.
At the start of the Japanese fiscal year’s second quarter in July the three large Japanese shipping lines – NYK, K Line and MOL – all still assumed, despite reporting losses in their results, that their cost-cutting measures would soon improve the situation. In the meantime, however, these expectations have not been met. Rather, the shipping lines had to correct their estimates for 2012 downward, sometimes dramatically so.
MOL now assumes, for example, that it will post a consolidated net loss of JPY 24 billion (almost USD 300 million), rather than a net income of JPY 3 billion (USD 37 million). The company will therefore not pay an interim dividend.
Dividend despite lower forecast
K Line will also not distribute a dividend for the time being. In July, the company forecast net income of JPY 8 billion (USD 100 million) for fiscal 2012. By now it only expects JPY 2 billion (USD 25 million), a rather substantial difference of 75%.
The situation looks even more extreme for NYK. Japan’s largest shipping line still expected net income of JPY 20 billion (USD 250 million) at the end of the first quarter, but has now lowered its forecast to JPY 1 billion (USD 12.5 million). Even so the company will pay an interim dividend of JPY 2 (USD 0.025) per share.
Rate increase was not sustainable
The reasons for these changed expectations are well known. «The rates for capesize and panamax ships have reached an absolute low,» a MOL spokesperson said. In addition, a record-breaking number of new bulk freighters has been delivered, exacerbating the imbalance between supply and demand in this sector even further, according to the spokesperson.
While the situation looks somewhat better with oil tankers, this business field could not absorb the other sectors’ losses due to lower demand during the summer season. And cargo rates in the container sector are declining again.
While it still looked like new consolidations and the practice of super-slow steaming could improve the rate level in spring, it became clear during summer that this development was not sustainable.
Far East–Europe trouble
A drop in freight volumes on the main routes between the Far East and Europe is particularly hard on the container lines; as such a reduction severely affects rates. Despite bailout packages for vulnerable countries in the Eurozone, demand for consumer goods, as well as investments, are declining in Europe overall. Strict savings requirements and insecure labour markets leave their marks here.
The market in the United States of America at this time also offers the shipping lines little reason for optimism. The central bank of the USA did announce a third round of monetary measures to stimulate the country’s economy in September. But it is difficult to predict what will happen next. Economic growth in China is also on the decline.
Dismal prospects for Q3 and 4
Market conditions, in particular for the containership industry, continue to be bad. The three companies agree that an improvement cannot be expected by the end of the current fiscal year.
Additional new deliveries will apply much pressure to cargo rates, and the three corporations therefore expect the trend of ever sinking cargo rates to continue. While the prospects for the oil tanker and bulk freighter sectors are better for the winter half-year, a strong Yen, as well as increasing bunker prices, have all add to the Japanese companies’ woes recently.
Attempting to balance things out
The strategy in the container sector will be to further economise. This means another reduction in sailings, as well as the reorganisation of shipping routes. With these measures, the shipping lines want to launch another attempt at balancing supply and demand. Whether these measures will help improve the results in time for the presentation of the final annual accounts remains to be seen.