Nov 1, 2013

Liner divisions of Japan's Big 3 expect deficits in FY2013

Japan's three largest operators (Japan's Big 3, comprising Nippon Yusen Kaisha, Mitsui OSK Lines and Kawasaki Kisen Kaisha) project deficits in their liner business for the entirety of fiscal 2013 ending March next year. They managed to keep their surplus forecasts as of August, but all three companies, except Kawasaki Kisen Kaisha (K Line), failed to reach their projections and plunged to a deficit in the first half of the year, and are now expecting their business results in the second half of fiscal 2013 to deteriorate by a much bigger scale than initially projected. The projected drop in earnings is largely attributable to the wide-margin decline in freight rates in the Asia-Europe trade route. The cargo traffic has entered the low season in October and operators continue to implement measures such as reduced frequency of trips during the winter season and rate restoration, but the operators still find it difficult to project drastic recovery in their business results for the second half of the year. Operators in the liner division targeted surpluses for fiscal 2013, but they seem to be embroiled in another wave of deterioration in the business climate. Now if Nippon Yusen Kaisha (NYK) and Mitsui OSK Lines (MOL) end up with deficits this fiscal year, then this year will mark the third consecutive year of deficits for them since fiscal 2011 that ended in March 2012.

The first-half business results of Japan's Big 3 for fiscal 2013 ending March next year are as per the accompanying table.

A comparison of the results in the first (April-June) and second (July-September) quarters reveals improvements in business performance, although there were differences in the level of such improvements. When viewed in terms of the freight rate trend on a quarterly basis, the plunge in freight rates on the Europe and Mediterranean trade routes was in/after August might have been most noteworthy, but the average freight rates in the second quarter still managed to climb higher in the second quarter than in the first quarter. On the other hand, there is a visible downward spiral in the rates on the South America and North America West Coast routes and the business results of Japan's Big 3 varied depending on their route portfolios and other factors.

As regards the first half business results of the triumvirate, K Line initially projected to break even in the second quarter (July-September), but ended up with Y1.5 billion in surplus, higher than its forecast. And for the latter half of this year, the company envisions another Y1.5 billion in surplus. It is believed that its positive business results came as a result of its move to reduce trips in the North-South services and raise the ratio of ships deployed to the East-West lanes. Meanwhile, NYK forecasted break-even results in the first half of fiscal 2013, but sustained Y800 million in deficits in the first half with Y200 million deficits in the second quarter alone. Further, MOL expected Y1.6 billion in surpluses in the second quarter, but ended up with Y2.6 billion in deficits. The massive plunge was apparently attributable largely to the slumped state of the market in the South America East Coast trade, where the company holds a competitive edge.

The scenario will be rather different in relation to the projections of the Big 3 for the latter half of fiscal 2013. In this regard, NYK envisions Y4.1 billion losses, while MOL and K Line forecast Y3.3 billion and Y6 billion in deficits, respectively. While the differences in forecasts depends on their market projections, K Line, the sole operator among the three to revert to the surplus side in the first half of the year, is predicting the biggest deficit margin in the latter half. The trio point to the wide-margin drop in freight rates in the Europe and Mediterranean trade routes as the primary factor behind their massive deficits. They enforced significant rate restoration (R/R) of about $900 effective November 1, so it is sure that a certain rise in their profits. However, the freight rates are at an extremely low level at the moment and the cargo traffic has entered the off-peak season, so they find it hard to envision significant improvements in their business results. The operators project declines not only in the freight rates but also in the volume of cargoes.

In stark contrast, signs of recovery have begun to emerge in the North-South trade. As a result of service rationalization that was done at the onset of the off-season, the ship supply-demand balance is tightening right now and is projected to rise toward the end of the year. In light of this, Japan's Big 3 will all be impacted by the slumped state of the East-West trade route. But for MOL, which has a relatively bigger interest in the South America trade, it just might enjoy more benefits in some of its businesses.

Search for Top 5 Countries, Suppliers & Importers for each HS Codes you can select Free on Datamyne Site.

http://www.datamyne.com/hts/
Descartes Datamyne