Ocean Network Express or ONE, the container carrier owned by Japan’s three largest shipping companies, has reported a net after tax loss of $192 million in the second quarter of its current fiscal year.
Combined with a $120 million loss in the first quarter and an additional $289 million loss forecast for the second half, ONE now expects to lose about $600 million for the full fiscal year compared to an initial forecast of $110 million profit.
Owned by NYK, MOL and “K” Line, ONE currently has a fleet of 228 ships with 1.55 million-TEU capacity, making it the world’s sixth-largest container carrier. Like its three owners, ONE’s current fiscal year runs through March 31, 2019.
ONE said revenue also has been below expectations — $2.96 billion in the second quarter compared to $3.38 billion forecast in July. ONE now forecasts revenue of $11 billion for the year as opposed to the $12.25 billion forecast in July.
Customer service issues in the first three months of operation have been resolved, ONE said, but it added liftings have been lower than targeted. It also is experiencing higher costs for returning empty containers to Asia “as the result of a larger impact due to a slower recovery on the nondominant leg.”
ONE carried 761,000 TEUs in the second fiscal quarter from Asia to North America for a 90 percent utilization, compared to 530,000 TEUs and 73 percent utilization in the first quarter.
However, in the backhaul direction, from North America to Asia, it carried only 285,000 TEUs with a 33 percent utilization in the second quarter and 218,000 TEUs, also 33 percent utilization, in the first quarter.
“We are maintaining the utilization by reducing frequencies as necessary during the lower demand periods in H2,” said ONE. “Freight has been maintained on the high side after the summer season as a result of rush demand towards the calendar year end.”
A similar imbalance exists in the Asia-Europe trade. ONE moved 478,000 TEUs from Asia to Europe in the second quarter (90 percent utilization), an improvement from the 312,000 TEUs (73 percent utilization) in the first quarter. Backhauls from Europe to Asia were 263,000 in the second quarter (47 percent utilization) and 194,000 (46 percent utilization) in the first quarter.
While freight recovered in the second quarter, ONE said there has been a downward trend in the Asia-Europe trade after volumes peaked in August. It said, “Flexible planning of blank sailing based on the demand trend is now under way.”
ONE said it is achieving synergies from combining the container liner operations of NYK, MOL and “K” Line. “Annual integration synergy of $1.05 billion are steadily emerging. As of FY 2018, it will reach 75 percent against originally budgeted 60 percent.”
ONE said the timing to transfer the container terminal operations outside of Japan of NYK, MOL and “K” Line is unchanged and still planned for the fourth quarter of the current fiscal year — the first three months of 2019.
The loss at ONE was reflected in the result of the three major Japanese carriers, which also reported their second-quarter results on Wednesday. MOL had a profit while NYK and “K” Line recorded losses.
NYK said its loss for the second quarter ending Sept. 30 attributable to the owners of the parent company was 5.2 billion yen ($46 million) compared to a profit of 892 million yen in the same period the prior year. Revenue was 451 billion yen in the second quarter of the current fiscal year, compared with 542.6 billion yen in the same period last year.
While ONE and NYK’s air cargo business, Nippon Cargo Airlines, had losses, the dry bulk shipping and logistics businesses were profitable.
Nippon Cargo Airlines grounded all 11 of its aircraft — eight 747-8Fs and three 747-400Fs — in the middle of June in order to confirm the soundness of the aircraft. The company said it took this step because of improper handling of maintenance work conducted in the past.
The company has decided to eliminate the 747-400Fs and recorded an impairment loss on the planes and spare engines as a result. The 747-400Fs are being brought back into service once their soundness has been confirmed. As of early October, five aircraft were back in service.
NYK’s logistics business is “progressing steadily with both forwarding business and contract logistics business improving.” It reported an increased profit versus the same period last year.
The company said its bulk shipping business improved on the back of market recovery, but that “automobile transport volume to resource-rich countries is slow to recover.”
MOL said it had a profit in the second quarter ending Sept. 30 attributable to the owners of the parent company of 7.4 billion yen ($65.5 million) compared to a profit of 7.9 billion yen in the same period the prior year. Revenue was 315 billion yen in the second quarter of the current fiscal year, compared with 416 billion yen in the same period last year.
In addition to a loss in the container business, MOL said its car carrier segment had a decrease in ordinary profit. Both MOL and NYK said that the car carrier business saw a temporary decrease in shipment volume due to heavy rains in Western Japan.
The United States is not the only country that is experiencing issues with an aging cadre of truck drivers. That has been a plus for MOL’s ferry and coastal roll-on, roll-off business. which “observed a firm cargo volume having continued since the previous fiscal year amid a trend of accelerated modal shift, which reflects shortage and aging of the truck drivers and tighter labor controls in Japan.”
In the dry bulk cargo business MOL said it saw a 6.8 percent increase in revenue and 9.6 percent increase in ordinary profit in the first half of the current fiscal year. Rates for “capsize” bulkers rose to the $24,000 range per day from July through August amid a recovery in iron ore shipments from Brazil. Then the rate remained roughly in the range of $17,000 per day in September “amid a weakening market brought about by deteriorating sentiment with respect to trade friction between the U.S. and China.”
The Panamax dry bulk market “briefly endured deteriorating sentiment, but improved gradually and trended in $13,000 to $14,000 range per day from the middle of September onward as volumes of mainstay cargoes such as coal and grain shipments from South America remained steady. Facing such market conditions, the dry bulk business recorded positive earnings amid a
slight year-on-year increase in ordinary profit.”
The company’s energy transport segment — crude and product tankers, liquid natural gas (LNG) and liquid petroleum gas (LPG) tankers — saw revenues climb 5.6 percent and ordinary profit increase 60.6 percent in the first half of the fiscal year.
MOL said, “The LNG carrier division maintained robust performance, in part due to new vessel deliveries for a European customer, in addition to vessels operating under existing long-term contracts. The offshore business division also recorded stable ordinary profit, brought about by steady operations of existing projects including those that started operation in June.”
It said the LPG carrier market (LPG carriers transport heavier hydrocarbons like butane and propane, as opposed to LNG carriers that carry methane) “followed a downward trend in the first quarter due to declining vessel demand in the U.S. region amid a situation where LPG trades slowed down as rising prices of U.S. LPG resulted in a diminishing price difference in comparison with the Asia region. However, the market has since shifted to a trajectory of recovery amid increasing vessel demand in the U.S. region as a result of that price difference once again widening at the outset of the second quarter.”
“K” Line said it had a loss attributable to the owners of the parent company in the second fiscal quarter ending September 30 of 5.3 billion yen ($47 million) compared with a profit of 4.7 billion in the second quarter the prior fiscal year. Revenue was 204 billion yen in the second quarter of the current fiscal year, compared with 291.6 billion yen in the same period last year.
“K” Line saw improved earnings in the second quarter of the current fiscal year over the first quarter in both its dry bulk and energy resource transport segments.
In its car carrier business, “K” Line said “cargo movements for finished vehicles continued to gradually increase as a trend except for shipments to the Middle East, whose economic recovery is lagging, and within Europe, whose sales decline affected by implementation of worldwide harmonized light vehicles test procedure.
It said overall volume of finished vehicles shipped by the Group increased, but “as a result of factors such as a rise in fuel costs and the deterioration of operation efficiency, revenue declined year-on-year and a loss was recorded.”
“K” Line said it its logistics business in Japan continued to have robust cargo movements. “Although the operating rate declined and costs increased due to earthquakes and rough weather, the impact was limited.”
“In the international logistics sector, the growth of cargo movements related to semiconductors and e-commerce in air cargo transportation continued solidly. Likewise, the business scale of localized logistics services in such countries as Thailand, Indonesia and the Philippines steadily expanded,” said "K" Line. “On the other hand, cost increasing for enhancing business capabilities in the logistics business occurred after the integration of the containership business. As a result, the logistics business overall recorded a year-on-year increase in revenue, but profit declined year-on-year.”