NYK feels less pain in 2013 but fine lurks in background

The pain has eased for NYK Lines as it navigates a new path towards the more profitable future in LNG and niche trades such as car-carriers. However an exceptional item in the form of an anti-competition fine depressed profits.

Annual results for 2013 saw both revenue and profits increase as market conditions improved in most of the key businesses whilst internal costs saw downward pressure.

Consolidated revenues increased by 17.9% year-on-year and operating income was up around 150%, however a fine of ¥13bn diluted Net Income which rose by 74.9%.

What has been up until recently NYK’s core business, container shipping, saw demand grow with intra-Asian trade experiencing “volumes surge compared with the previous year”. NYK also introduced new and larger vessels which enabled it to control costs such as fuel costs. The picture was spoilt by falling freight-rates due to the over-supply of big ships on major routes. Operating loss increased by ¥1.3bn to ¥3.8bn over the year.

The air cargo division remained problematic with both volumes and rates weak leading to an increased loss at ¥7.5bn.

The contract logistics business had a mixed year, failing to hit sales targets in Europe and North America but succeeding in Asia. This led to a jump in profits from ¥2.1bn in 2012 to ¥5.6bn in 2013.

NYK’s ‘Bulk shipping segment’ reported that the car-carrier business saw higher volumes and that the ‘dry bulk’ carriers saw an improved “supply-demand balance”. Oil tanker demand and supply also improved whilst the Liquefied Natural Gas (LNG) tanker business “performed well”. NYK also commenced operations of its first ‘floating production, storage and offloading’ (FPSO- a form of oil rig) vessel. The consequence was a 19.9% increase in revenue and a more than doubling of operating profits to ¥47bn. Yet the limited financial breakdown of this segment makes it difficult to see which part of the business contributed what to the final result.

Certainly the bleeding has been controlled in all but the air cargo business although container shipping has not broken-even in terms of operating profit. It is unclear how well LNG shipping is doing and thus difficult to understand the potential of what will be a key part of NYK’s future. One dark-cloud on the horizon is the fine for anti-competitive behaviour in the car-carrier market. It’s possible that this may be just the first of a number of big penalties the company must pay, a situation reminiscent of some other logistics markets over the past few years.