News / Mixed Q1 for Japan's container carriers as they battle overcapacity and volatile rates

© Khunaspix Dreamstime.

The three Japanese ocean carriers, K Line, NYK and MOL, have reported contrasting fortunes in the container shipping arms of their businesses in the first-quarter results for their fiscal year which began on 1 April.

K Line, the smallest, a member of the CKYHE alliance, said it had seen a “positive trend” in its containership business and an “upward trend in freight rates for Europe-bound routes that had long been low”.

In comparison, Japan’s second-largest shipping line, MOL, a member of the G6 alliance, said a recovery in freight rates on its two biggest tradelanes – Asia-Europe and the transpacific – had “remained elusive”.

This was due to a number of factors, but especially the consequences of “continued deliveries of large vessels”, it added.

A “considerable slump in freight rate levels” on its South America east coast route was said by MOL to contribute to its overall below-par performance.

The biggest of the three, NYK, also a member of the G6, agreed with MOL that an excess supply of vessels caused the “continued slump” in container freight rates, and in response to the market troubles, NYK would “continue to reduce its fleet and cut its operational expenses”.

So K Line was the only Japanese carrier to report an operating profit for its liner business during the quarter, posting a $22m surplus compared with a breakeven result for the same three months of 2013.

MOL recorded a $73m loss, while NYK posted a deficit of $2m, adding it had “reduced its recurring loss” in the sector.

Nonetheless, because of the diversified nature of their business, all three were able to record increased net income in the quarter from other sectors, such as dry bulk, tankers and car carriers.

At the consolidated level, NYK’s revenue for the quarter was $5.7bn and net income $100m, while MOL turned over $4.4bn and recorded a net return of $84m. K Line’s revenue was $3.2bn, yielding a net of $42m.

On the two major tradelanes of Asia-Europe and the transpacific, NYK carried 546,000teu in the quarter, compared with 462,000teu in 2013; MOL lifted 481,000teu versus 415,000teu; and K Line matched NYK’s 546,000teu against 503,000teu last year.

The cargo growth of G6 partners NYK and MOL was heavily weighted towards Asia-Europe westbound, recording quarter-on-quarter volume increases of 19.4% and 27.6% respectively. K Line saw a much more modest 5% growth in cargo liftings on the westbound Asia-Europe route.

MOL seems the most pessimistic of the trio on the health of the container liner business – it has lowered its group profit guidance for the full-year – but NYK also expressed concern, commenting that the environment surrounding the shipping industry “remained severe”.

Nevertheless, the current fundamentals of cargo growth and good load factors across the major tradelanes suggest the Japanese carriers and their peers can anticipate better weeks ahead, evidenced for example by Friday’s substantial spike in the Shanghai Containerized Freight Index on routes to both Europe and the US.

The Shanghai-North Europe SCFI leg jumped 21% to reach $1,455 per teu, a climb of $252 per teu, its highest level since February. However, as has been seen many times in the past few years, general rate increases can be eroded in just a few weeks by carriers prioritising market share over profitability.