Japanese trio extend recovery but fundamental weakness remains

The recovery of NYK Line’s finances, appears to be a result of the company’s acceptance of the shipping market. There has been a similar story reported for Mitsui OSK Line (MOL) and K Line as the Japanese shipping companies note that bulkers and car-carriers have been propping-up profits whilst losses are controlled through lower costs at their container shipping operations.

Consolidated revenues for the first six months at NYK Lines were up 15% at JPY1,089bn year-on-year whilst operating income increased from JPY17.8bn in the first half of 2012 to JPY19.9bn in the same period this year. Net income jumped from a loss to a profit of JPY20.5bn for the half year. Its freight forwarding and contract logistics businesses saw 6.5% and 18.4% increases in revenue respectively but continued to find profits flat at best.

What propped-up the results was an improvement in the ‘Bulk-Shipping’ division. This includes both oil tankers, dry-bulkers- market for which remained difficult, but also car-carriers. The latter has always been a valuable business for NYK and it is this and a better performance on oil drilling vessels that is probably behind the JPY9.1bn increase to a half year profit of JPY22.1bn.

MOL also saw a marked improvement in its dry-bulk shipping business as well as its car carriers, helping it to both increase its revenue by 11.7% year-on-year and to turn a previous loss into a net profit of JPY21.1bn. K line had a similar experience with its bulk shipping business almost trebling its profits to lead to the company increasing revenues by 11% and doubling profits.

The experience that all three companies shared was continued difficulties their container shipping businesses, with either losses or falls in profits only alleviated by the cost control though super-slow steaming. What has not changed is, as the CEO of NYK Line, Yasumi Kudo said “substantial improvement in the supply –demand imbalance failed to materialize.” Several weeks ago he had commented that over-supply of ships in the shipping market was its “usual state” and these results confirm this. The problem is that these three companies have yet to make the rest of their companies reliably perform to compensate for the persistent weakness in container shipping.