Japanese liners expect record losses Tomoo Yatsuhashi, Japan Special Correspondent | Jan 31, 2017 10:09AM EST
“K” Line has more than doubled its forecast losses for its fiscal year.
Two of Japan’s “Big Three” container lines warned of record losses for the fiscal year ending March 31, as all three reported revenue declines of roughly 20 percent year-over-year in the first three fiscal quarters.
NYK Line, Japan’s top container line, and third-ranked “K” Line are anticipating record losses for the fiscal year while MOL, Japan’s No. 2 container line, expects no profit. NYK and “K” Line also reported losses in the first three fiscal quarters while MOL managed to turn a profit.
The anticipation of record losses and no profit for the fiscal year underscore the necessity of the three container lines’ plan to merge their operations into a single unit. That process, expected to wrap up in 2018, will be facilitated by the fact they are all members of THE Alliance along with Hapag-Lloyd and Yang Ming Line, which begins in April.
NYK predicts a fiscal year net loss of 245 billion yen ($2.15 billion), while “K” Line expects to lose 94 billion yen, more than double its previous 45.5-billion-yen estimate for its full-year net loss.
MOL had expected to turn a 7-billion-yen profit for the fiscal year, but that proved too optimistic amid a global market of slumping freight rates and cargo volumes in a market defined by structural overcapacity and stagnant demand.
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“In the container ship business, although the freight rate market appears to have bottomed out, mainly in the east-west services, the recovery in short-term freight rates is expected to stall on account of an anticipated weakening of the freight market due to seasonal factors,” “K” Line said in a statement.
Spot freight rates on the Asia-Europe and trans-Pacific trades improved throughout the fourth quarter as the collapse of Hanjin Shipping coincided with the traditional peak shipping season, with the sudden gap in capacity and increase in demand helping to keep rates elevated.
Spot rates maintained much of that strength even after the peak season began to subside thanks to the early Lunar New Year of 2017. That meant shippers kept moving goods to ensure they had adequate inventory before factories in Asia shut down for two weeks starting Jan. 28. Many in the industry, seemingly “K” Line as well, believe that freight rates will weaken now that those seasonal demand factors have run their course.
“K” Line said it will work to increase profitability “by adjusting vessel allocation through its alliance scale in line with supply and demand,” cutting costs, and focusing on more profitable cargo, such as refrigerated goods.
MOL downgraded its earnings forecast because of concerns over the declining value of its container shipping assets, as the value of container ships has dropped significantly over the past year, the company said.
On the revenue front, NYK recorded a 19.9 percent year-over-year decline in the first three fiscal quarters to 1.4 trillion yen, while “K” Line’s revenue declined 22.2 percent to 761 billion yen, and MOL’s revenue fell 17.9 percent to 1.08 trillion yen.
NYK Line incurred a net loss of 226 billion yen in the April-to-December period, compared with a net profit of 22.8 billion yen a year earlier, as “K” Line suffered a net loss of 54.5 billion yen, compared with a net profit of 9.27 billion yen a year earlier. Net profit at MOL surged 43.1 percent year-over-year to 19 billion yen.