Ocean Network Express, the container shipping company owned by NYK, MOL and “K” Line, forecasts a profit in the current fiscal year.
Japan’s three largest shipping companies — NYK, MOL and “K” Line — reported financial results for their 2018-19 fiscal years, including the financial results for the container carrier Ocean Network Express (ONE) they jointly own.
ONE had a loss of $586 million in the fiscal year ending March 31 and revenue of $10.88 billion. It is ONE’s first year of operation, and no comparison for past performance of the liner operations of the three owners was given. However, ONE did forecast that in the current fiscal year, which runs from April 1 to March 31, 2020, it will have a profit of $85 million on revenue of $12.7 billion.
ONE said that in the final quarter of its fiscal year — the first three months of 2019 — the eastbound transpacific route trade was relatively weak after the Chinese New Year, due “in part to a backlash downturn from the earlier rush demand ahead of additional U.S. tariffs on China.” Freight rates slightly declined from Q3 because of a decrease in demand.
ONE said it is expects profits to gradually recover throughout the first half of its fiscal year with improved container volumes that will recover to the levels before NYK, MOL and “K” Line integrated their liner operations. ONE said that volumes that dropped due to teething problem when it began its services last spring have been restored.
“Measures will be taken to improve revenue and reduce expenditures such as improving the cargo portfolio, reducing fuel oil costs and cutting overhead costs,” said ONE. It added that it plans to “improve profit by optimizing the combination of front-haul and backhaul cargoes.”
The three companies are planning to transfer their terminal businesses outside of Japan to ONE during the current fiscal year.
ONE said that by merging the liner arms of NYK, MOL and “K” Line, the companies will realize $1.05 billion in synergies. It added that 82 percent of those savings were achieved by March 31, an additional 14 percent will be achieved in the current fiscal year and the last 4 percent in fiscal 2020-21.
The synergies include:
• $430 million in variable cost reductions on things such as rail, truck, feeder ship transport and terminal equipment;
• $370 million from reduced overhead such as information technology costs, rationalization of the organization and outsourcing;
• $250 million from reduced operating costs on items such as fuel consumption and from product rationalization.