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NYK records a profit even as revenue falls in first half

Japan’s largest shipping company boosted by improvement at Ocean Network Express.

Nippon Yusen Kabushiki Kaisha (JP: 9101), also known as NYK Line, recorded a profit in the six months ending Sept. 30, a turnaround from the loss reported in the same period a year earlier. Japan’s major liner companies report their earnings on a fiscal year that runs from April 1 to March 30.

Japan’s largest shipping company had operating profit of 15.8 billion yen ($146.7 million), compared with a loss of 4.2 billion yen in the same period last year. NYK is forecasting operating profit of 40.5 billion yen for the 2019-20 fiscal year, up from the 34.5 billion it had forecast on July 31.

The first-half profit improvement came despite a 9.9% drop in revenue to 824.7 billion yen in the first six months of the current fiscal year compared with revenue of 915.7 billion yen in the six months ending Sept. 30, 2018.

NYK revenue and earnings by segment.

NYK, along with MOL and “K” Line, owns the liner container shipping company Ocean Network Express (ONE). NYK is also involved in bulk shipping, logistics, air cargo transportation, real estate and other sectors.

NYK saw its six-month container liner revenue decline 31% year-on-year to 103.6 billion yen in the six months ending June 30, 2019, but “as a whole, the business performance greatly improved, and a profit was recorded” of 9.7 billion yen compared to a loss of 18.8 billion yen in the six months ending Sept. 30, 2018.

ONE “maintained steady overall liftings and utilization, and the liftings particularly increased on the major North America and Europe trades, as well as Intra-Asia trade,” NYK said in its quarterly earnings report. “On the other hand, although freight rates in the North America trade were unchanged compared to the previous fiscal year, in the Europe trade, due to deterioration in the supply and demand balance, freight rates did not rise during the summer peak season and were sluggish during the quarter.”

NYK said that at ONE, “with the aim of improving profitability, synergistic effects of the business integration were further accumulated and improvement measures such as optimizing the cargo portfolio continued to be executed.”

ONE started operations in 2018 and “large one-time costs were incurred following the teething problems that occurred immediately after the start of service,” NYK said. It added that those costs have not occurred this year, “and as a result, the bottom line greatly improved.”

NYK said container handling volume at terminals in Japan increased, but that overseas volumes declined due to the sale of its NYK Terminals subsidiary in the U.S. to Macquarie Infrastructure Partners investment funds.

NYK subsidiary Nippon Cargo Airlines took aircraft out of service in the 2018-2019 fiscal year because of improper handling of maintenance. Aircraft were all returned to service by April 1, 2019, when the current fiscal year began. The company saw revenue increase 24.8% to 36.3 billion yen, but the segment reported a loss of 9.1 billion yen, compared with a loss of 7.9 billion in the first half of the prior fiscal year.

NYK said “as the result of lower demand due to the impact of mainly the trade problem between the US and China, the freight rate and load factor fell, and a loss was recorded” at the airline.

Similarly, NYK said air forwarding business saw slow demand in Japan and Asia, and handling volumes fell. Ocean forwarding also saw handling volume drop significantly because of the U.S.-China trade war.

NYK’s logistics revenue was 238.2 billion yen in the first six months of the fiscal year, down 10.4%, and recurring profit was 2.3 billion, a drop of 28%.

“In the logistics business, the results were generally strong, including progress in the initiatives aimed at improving profitability in Europe,” the company said.

NYK said in its car transportation division, shipping traffic was strong to North America and within Asia.

While more dry bulk ships were commissioned than scrapped, NYK said increased dry dockings, primarily by Capesize bulk carriers installing exhaust scrubbers in advance of the sulfur cap promulgated by the International Maritime Organization, resulted in an improved market.

“Cargo volumes of iron ore are recovering from the supply disruptions that occurred in Brazil and Western Australia at the end of the previous fiscal year. In addition, cargo volumes of coal and grain were firm.”

In the tanker industry, NYK said markets improved for VLCCs following the attacks on tankers near the Strait of Hormuz in May and June and the drone attack on Saudi Arabian oil facilities in September. It also said shipping traffic became more active for petrochemical tankers.

It said the market for liquefied petroleum gas tankers benefited from more shipments from the U.S. to Asia, and liquefied natural gas tankers benefited from “long-term contracts that generate stable earnings.”

Overall the company’s bulk shipping segment recorded a profit of 14.2 billion yen in the first half of the company’s fiscal year, 10% less than in 2018, while revenues were 400.3 billion yen, down 3.5%.

Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.

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