The joint venture of Japan’s three largest shipping companies said it benefited from the rush to get cargo into the U.S. ahead of threatened tariff increase.
Ocean Network Express (ONE) — the container carrier owned by Japan’s three largest shipping companies, NYK, MOL, and “K” Line — said it had a $179 million loss in its third fiscal quarter, which ended Dec. 31.
But ONE said the loss was smaller than the $218 million forecast just three months ago, in part because of the push by importers late last year to get cargo into the U.S. ahead of higher tariffs that had been scheduled to take effect on Jan. 1. That increase, from 10 percent to 25 percent on $200 billion of Chinese goods, has been delayed until March and is the subject of ongoing trade talks by the U.S. and China.
ONE had revenue of $3.025 billion in the third fiscal quarter. (ONE and all three of the Japanese carriers that own it have fiscal years that end on March 31.)
ONE began operations last April, so no comparison was made to prior-year results, but the company had a loss of $311 million in the first six months of the year on revenue of $5.03 billion. For the full year ending on March 31, it is now forecasting a loss of $594 million and revenue of $10.885 million, about the same as in previous forecasts.
At the end of the third quarter, ONE operated a fleet of 223 containerships with capacity of 1,529,496 TEUs, slightly down from the 230 containerships with capacity of 1,561,899 TEUs at the end of the first quarter.
The company did say in the third quarter it lifted 746,000 TEUs, down from 761,000 TEUs in the second quarter in the trade from Asia to North America. In the other direction, from North America to Asia, liftings were 320,000 TEUs, up from 285,000 TEUs in the second quarter.
It said utilization of its ships on the same trade lanes “recovered significantly” as it “flexibly reduced frequencies of the service to meet decreased demand amid the impact of worse-than-expected dense fog and congestion in East China and North China regions.” Utilization of its ships in the transpacific was 95 percent eastbound and 40 percent westbound in the third quarter, up from 90 percent and 33 percent, respectively, in the second quarter.
Freight rates were also higher in eastbound Asia-North America trade. The company did not report actual rates but said an index pegged at 100 in the first quarter and 101 in the second quarter rose to 108 in the third quarter.
“Demand in October and November (usually a slow season following China’s National Day) was stronger than usual, due in part to the impact of last-minute demand to avoid new U.S. tariffs on Chinese products,” it explained. “The tight demand and supply balance continued as frequencies of the service were reduced and liftings and freight rates remained at high levels, higher than Q2.”
ONE also reported “detention and demurrage collection amounts increased, remaining at higher levels” than it had announced in October.
Detention and demurrage charges by carriers, though not specifically those of ONE, have vexed many U.S. shippers and were the subject of an FMC investigation last year. Shippers complain that they incur such charges because they are unable to retrieve containers promptly because of not being given notice of cargo availability promptly, insufficient free time and congestion and lack of chassis at terminals or inland depots. Some shippers also have been using containers for storage because of a lack of warehouse space in some locations.
In the Asia-to-Europe trade, ONE said it moved 442,000 TEUs in the third quarter compared with 478,000 in the second quarter. Despite the lower volumes, ONE said utilization of its fleet improved to 92 percent in the third quarter from 90 percent in the second quarter.
“Liftings dropped as they typically do every year during the slow season (October and November after China’s National Day), but demand recovered from December to year-end/before Chinese New Year,” said ONE. “Ships continued to depart with almost full loads. Though freight rates, which had dropped since October did not collapse, their upturn was limited despite December’s increase in demand.” Using a similar index to the one it used to report on freight rates in the Asia-to-North America trade, ONE said the Asia-Europe headhaul rate index moved from 100 in the first quarter to 106 in the second quarter and back down to 100 in the third quarter.
In the backhaul trade from Europe to Asia, ONE said it moved 315,000 TEUs in the third quarter, resulting in 62 percent utilization compared with 263,000 TEUs and 47 percent utilization in the second quarter.
MOL noted, “ONE faces an uncertain external environment with the ongoing trade friction between the U.S. and China, the economic trends in Europe and the impact of Chinese environmental regulations on backhaul cargo volumes. However, ONE will continue working to improve its financial results through measures such as cutting operating costs.”
ONE said it plans to improve profit by optimizing “match-back cargo” and through contract tender negotiations for 2019. It says The Alliance, the cargo-sharing agreement that it is part of along with Hapag-Lloyd and Yang Ming, has been restructuring and that it plans to enhance bunker savings in order to reduce costs and environmental impacts.
ONE said by combining the liner operations of its three partners it is realizing synergies, and it expects 75 percent of those savings will be realized by the end of March and the other 25 percent within three years.
ONE said its three owners are still targeting transfer of their terminal operations outside of Japan to ONE within the current fiscal year. The individual companies plan to continue to operate their own terminals in Japan.
In addition to the operations of ONE, the three Japanese carriers also reported their financial results, which includes their activities in other segments of the transportation and logistics industry.
Nippon Yusen Kabushiki Kaisha or NYK Line reported revenue of 1.38 trillion yen ($12.7 billion) for the nine months ending Dec. 31, a 15 percent decrease from the first nine months of their prior fiscal year. Operating profit was 4.56 billion, an 82 percent drop from the first nine months of the prior fiscal year.
“Profit attributable to the owners of the parent” was a negative 8.7 billion yen in the first nine months of the current fiscal year compared to a positive 16.8 billion yen in the same period the prior fiscal year. NYK noted its “revenues greatly declined year on year due to the fact that the revenues of ONE, which is accounted for by the equity method, are no longer included.”
NYK said, “In the dry bulk shipping market, the pace of new capacity completion is steadily slowing down, and although shipment volumes to China were sluggish, the gradual market recovery continued. In the logistics business, shipment volumes were vigorous, and the business remained strong. On the other hand, although crude oil prices fell at the end of last year, they were still much higher compared to the same period the previous year, and bunker prices also increased.”
NYK said its “consolidated subsidiary Nippon Cargo Airlines Co. Ltd. grounded all 11 of its aircraft from the middle of June in order to confirm the soundness of the aircraft.” In July Japanese authorities had issued it a “business improvement order” because of improper handling of maintenance work. The company all eight of its Boeing 747-8F aircraft were re-entering service during January. The company also entered an agreement with Atlas Air to increase from two to five the Boeing 747-400F aircraft that Atlas operates for NCA under a strategic partnership. The two companies jointly utilize the airplanes, which will be added in April, July and September.
Mitsui O.S.K. Lines Ltd. or MOL said it had revenue of 942 billion yen for the nine months ending Dec. 31, 24 percent less than the 1.24 trillion yen recorded in the first nine months of their prior fiscal year. Operating profit was 29.7 billion yen, up 21.8 percent from 24.4 billion yen in first nine months of the prior fiscal year. “Profit attributable to the owners of the parent” was 20.1 billion yen in the first nine months of the current fiscal year, down 31.3 percent from the 29.2 billion yen in the same period the prior fiscal year.
MOL said in the Cape-size dry bulk market “during the first half of the fiscal year, the market rate rose for a time amid a recovery in iron ore shipments from Western Australia and Brazil, but then weakened through to the end of the second quarter, reflecting the impact of trade friction between the U.S. and China on market sentiment. At the beginning of the second half, in October, the market rate remained in the range of $17,000 to $18,000 per day, supported by firm spot demand.
However, in November, concern over deterioration in vessel supply-demand dynamics triggered by a freight train derailment in Australia led to panic selling in some parts of the market and caused the rate to fall sharply, reaching the range of $8,000 per day. From late November, the market recovered thanks to the returned spot demand, and in December the market rate remained roughly in the range of $16,000 per day although it dropped before the Christmas holidays as a seasonal factor.”
MOL said in the market for panamax bulkers, the “market held firm in the first half of the fiscal year, supported by steady volumes of mainstay cargoes such as coal and grain shipments from South America. This trend continued into the first half of October, with the rate remaining in the range of $14,000 per day due to steady volumes of coal shipments from Australia and Indonesia and grain shipments from the east coast of South America. However, lackluster grain shipments from North America amid trade friction between the U.S. and China and China’s temporary restriction of coals imports caused the rate to weaken and hover in the range of $11,000 to $12,000 per day from November. Facing such market conditions, the dry bulk business posted a year-on-year increase in ordinary profit.”
It said the market for very large crude oil carriers (VLCCs) “picked up from the first half of the fiscal year when the market was weak due to declining transportation demand as a result of seasonal factors. During the third quarter, the market remained strong overall due to factors such as the arrival of the winter demand period and increased crude oil exports from West Africa and North America as alternative sources to crude oil from Iran.
“The product tanker market picked up from the first half of the fiscal year when the market was weak overall due largely to excessive vessel supply, and from the second half of November, the market was back on a recovery path thanks to the arrival of the winter oil demand period and tighter vessel supply-demand dynamics reflecting the allocation of some large product tankers to the transportation of other commodities such as crude oil and heavy oil,” said MOL. “Facing these conditions, the tanker division posted a year-on-year decline in ordinary profit despite ceaseless efforts to improve operating efficiency through pool operations and cut costs alongside stable fulfillment of long-term contracts and steady implementation of contract extensions.”
MOL said its “LNG carrier division recorded a stable ordinary profit mainly through medium- to long-term charter contracts, including four newly built vessels”
MOL’s car carrier business saw reduced volumes because of trade friction between the U.S. and China that led to reduced shipments of completed cars to China. In addition, “compliance with new exhaust emissions and fuel economy standards resulted in decreased shipments of completed cars from Europe.”
Kawasaki Kisen Kaisha Ltd. or “K” Line said it had revenue of 638.5 billion yen in the nine-month period ending Dec. 31, down from 884.1 billion yen in the same period a year earlier. “K” Line had an operating loss of 9.3 billion yen in the first nine months of the current fiscal year, compared with an operating profit of 7.2 billion yen in the same period a year earlier. The loss to the owners of the parent was 31 billion yen in the first nine months of this year compared with a profit of 9.3 billion yen in the same period a year earlier.
“K” Line said overall its dry bulk segment “recorded year-on-year growth in revenue and returned to profitability from a loss in the same period of previous fiscal year”
It said its logistics business in Japan saw a temporary decline due to natural disasters such as earthquakes and rough weather in the second quarter.
“However, as the cargo movements in general were robust, the profitability improved. In the international logistics sector, the cargo movements related to semiconductors continued to be robust and the expanded high demand for the cargoes related to e-commerce also contributed to the earnings in air cargo transportation business. Likewise, the business scale of localized logistics services in Thailand, Indonesia and the Philippines also steadily expanded.”
“K” Line said its logistics segment has “been making progress in the reorganization of the global network following the integration of the containership business, organizational reformation and the development of IT systems. However, cost increasing for enhancing business capabilities in the logistics business occurred after the integration of the containership business. As a result, the overall logistics business recorded year on-year increase in revenue, but profit declined.”