Ocean Network Express (ONE), the carrier that began operations on April 1 when Japan’s big three shipping companies merged their liner operations, has sharply lowered its financial forecast for the current fiscal year, saying it now expects to report an after-tax loss of $600 million in its first year of operation instead of a $110 million profit.
Revenue during the same period — the company’s current fiscal year will end on March 31, 2019 — is now predicted to be $11 billion instead of the previously forecast $12.254 billion.
ONE said the merger of the container operations of the three Japanese shipping companies — Nippon Yusen Kabushiki Kaisha (NYK), Mitsui O.S.K. Lines (MOL) and Kawasaki Kisen Kaisha, Ltd. (“K” Line) — has resulted in “synergistic effects.” But it said “liftings and utilization dropped due to the impact of teething problems immediately after the commencement of services in April of this year."
The company described the teething problems this way: “Booking reception and documentation operations were delayed because ONE staff were not completely familiarized with the newly introduced IT system, and the staff were shorthanded. This caused significant inconvenience for customers. Issues such as the staff’s skill level and personnel shortages have already been addressed, and their operations have returned to normal.
“ONE sought to regain lost ground during the peak season from July to September, but liftings and utilization remained lower than the outlook because the negative impact remained on its main Asia-North America routes and intra-Asia routes,” it said.
ONE said it would provide more details on specific factors and specific routes responsible for the downward sales and earnings revision when the three owners report their second quarter (which ended Sept. 30) results. ONE said it has factored in a “certain degree” of impact from U.S.-China trade friction in its financial projection.
“The first factor behind the downward revision is the stagnation of liftings and utilization, and the second is the underachievement in the additional cost reduction to address increased bunker prices,” the company said. For the first half of ONE’s current fiscal year, which ended Sept. 30, ONE is projecting a loss of $310 million on revenue of $5 billion, a downward revision from its prior projection of a $38 million loss on revenue of $5.4 billion.
ONE said it has experienced “additional negative effects from the higher cost of returning containers brought on by decreased liftings on backhaul voyages,” for example from North America to Asia and from Europe to Asia.
ONE said the teething problems “have already been resolved” and that it is “working earnestly to restore the trust of customers and further improve service quality. However, liftings and utilization are still on the way to recovery, and the target for additional cost reduction to address increased bunker prices is expected to be lower than the target in the previously announced forecast.”
In a commentary appearing on his LinkedIn page, Lars Jensen, the chief executive officer of SeaIntelligence Consulting, said, “ONE is being hit by a double whammy. They will be faced with the same problems as the rest of the industry wherein fuel price increases are difficult to fully pass on. At the same time, they will have missed out on the strongest peak in many years on the transpacific eastbound trade.
“This is of course all very unfortunate for ONE line, but it also raises another important point. If ONE is indeed successful in regaining the lost ground, this means challenges for some of the other carriers. Other carriers will have experienced stronger than expected volume growth in 2018, capitalizing on ONE’s losses. That is only natural. But it similarly means that if ONE is able to regain ‘their’ volumes, it will negatively impact other carriers in 2019,” Jensen said.
He compared the situation to that of Maersk when it acquired P&O Nedlloyd in 2006 and the two companies had difficulties integrating their service and IT systems.
“Maersk did eventually bounce back and emerge stronger than ever — therefore ONE’s current problems might also be temporary,” wrote Jensen.
ONE has said synergies from combining the liner operations of the three companies have "turned out to be higher than the initial outlook."
Last week ONE announced it had entered into a bilateral feeder network cooperation with Hapag-Lloyd on 10 different services in North Europe, in the Mediterranean and in Asia. Marianne Rohweder, a spokeswoman for Hapag-Lloyd, told American Shipper, “Both companies have expressed their aim to bring the bilateral feeder network cooperation to a global level in the future, realizing further potential by including current networks not affected today and building joint networks in areas that are still underdeveloped.”
ONE and Hapag-Lloyd, along with Yang Ming, are part of THE Alliance, a global space-sharing alliance on the major east-west container trades. Yang Ming is not participating in the new feeder agreement, and Rohweder said, “Both companies have expressed their aim to bring the bilateral feeder network cooperation to a global level in the future, realizing further potential by including current networks not affected today and building joint networks in areas that are still underdeveloped.”
Dirk Visser, senior shipping consultant at Dynamar and managing editor of its DynaLiners publication, said the cooperation agreement between NYK and Hapag-Lloyd was significant.
“I think that we are watching a feeder trade novum here! Despite all deepsea alliances, consortia, vessel sharing agreements and slot exchange deals, so far mainline operators had been balking at taking space on feeder vessels operated by their partners.”
In the past, he said, “apparently, the small feeder ship seemed to be just too close to the actual shipper/consignee, thereby risking the revelation of sensitive commercial information to their competitor. These two THE Alliance members have apparently decided that this is not a valid argument anymore or decided to go for the probable savings of co-operation.”
He said, “It’s now wait and see whether other mainline partners would be following suit. If they do, it would not be good news for the common feeder operators, which have lost the patronage of ONE already. As far as known, none of the former individual ONE carriers used to operate dedicated feeder services before.”