Japan liner leaders wary of overcapacity

Japan liner leaders wary of overcapacity    NYK Line President Yasumi Kudo said in a speech Tuesday he foresees a situation of oversupply in the liner carrier industry in 2011 and 2012, and that other parts of NYK’s business will need to compensate for potentially lower profit levels from container shipping.
   ‘In the liner trade business, the operators learned the lesson that the best solution to achieve stable profits is to remove capacity exceeding the demands i.e., to do what we are supposed to do,’ Kudo said in a traditional New Year’s address. ‘This learning has been efficacious not only to the Grand Alliance (of which NYK is a member) but also other companies, some of which have reduced their services for Europe. Thanks to such initiatives, the freight rate level has stayed within the expected range, which enables us to post stable profits in coming years.
   ‘In the meantime, it should be noted that the tight supply-demand situation beyond estimation that we experienced in the first half of last year will not likely occur again for the foreseeable future, because slow steaming is already in place and there is growing supply pressure. We need to be prepared to see future profit levels may dip lower than those of the former half of last year. However, this negative factor has to be compensated for, needless to say, by logistics business.’

Kudo

   Kudo’s sober assessment of container shipping prospects parallel the efforts of the Japanese line to significantly cut its containership fleet — last year, Kudo said NYK sought to reduce its owned fleet by half by 2015. American Shipper found in its most recent Top 20 container lines report that no other line had cut its owned fleet more than NYK.
   Kudo added that given the downward trend in the second half of 2010, NYK’s 2011 profits would be lower than its 2010 profits.
   ‘We posted a rapid recovery in the first half of fiscal 2010 with an ordinary profit of about 80 billion yen (roughly $975 million), yet the profit is predicted to drop to a half of this figure in the latter half,’ Kudo said. ‘This is of course partly because of seasonality (slack season), but chiefly, the greatest factor is the loosening gap between supply and demand, as previously explained. We have to be ready to see this trend continue into fiscal 2011. If so, our profit for fiscal 2011 will very likely drop below that of fiscal 2010. This is something we definitely have to prevent.’
   Kudo said his company must adjust to a new level of growth rate in western nations.
   ‘The rapid revival seen in 2010 started to slow down significantly again in the autumn,’ he said. ‘We might see a favorable upturn for North American trade, as population growth is positive in the region, but in Europe, where the population has started to decline because of falling birthrates and aging populations just like Japan, we cannot expect a double-digit increase in cargo volume. Overall, the majority view is that the increase in cargo traffic for the West will stay at around 5 percent per annum in the near future.’
   And despite strong growth in Asia and emerging markets, Kudo said the industry has to be cognizant of keeping supply in check.
   ‘Following strong growth up to 2008 and a slight decrease of just below 3 percent in 2009, container cargo movement in Asia attained two-digit growth in 2010 and has since been back on a strong growth track,’ he said. ‘Considering that the around 5 percent growth for the western markets and the double-digit growth expected in Asia combined, the NYK Research Group forecasts 7-8 percent as the growth rate of world container cargo movement in 2011 and 2012, and the annual growth in container capacity for the same two years to be roughly 10 percent, as a result of the completion of numerous outstanding orders for new containerships. This leaves a widening gap between demand and supply, for which we have to be prepared for some years to come.’

Muto

   Meanwhile, in his own New Year’s speech, MOL President Koichi Muto said he too was worried about the impact of pending ship deliveries.
   ‘This year, we expect many new ships to be delivered to the market, and it is difficult to feel relaxed about the maritime shipping market conditions when you consider the future supply and demand balance for ships,’ he said.
   Muto said liner carriers must also be aware that developed regions — upon which the industry has depended to drive volume — are becoming less stable compared to developing regions.
   ‘In the global economy, we are seeing the paths of the developed countries and the emerging countries diverging,’ he said. ‘While the emerging countries are growing with strong momentum leading to further growth in the distribution of goods, Europe, North America and Japan, which make up 60 percent of world GDP, continue to be burdened by destabilizing factors.’
   But Muto said the industry cannot immerse itself in a crisis mentality if it wants to succeed.
   ‘If we let our sense of crisis become part of our routine behavior, I think the end result will be a weakening of each person’s ability to foresee change,’ he said. ‘The difference of a moment when responding to environmental change could determine the future survival of a business. It is unclear what the environment surrounding maritime shipping will be this year. But if we act with too much prudence in all matters, it will not be possible to achieve growth.’ ‘ Eric Johnson