Bloomberg News

Nippon Yusen, Mitsui O.S.K. Slash Forecasts on Cargo Rates

July 29, 2011

(Updates share prices in eighth paragraph.)

July 29 (Bloomberg) -- Nippon Yusen K.K. and Mitsui O.S.K. Lines Ltd., Japan’s two largest shipping lines, slashed their annual profit forecasts amid falling rates and rising fuel costs.

Nippon Yusen expects net income of 5 billion yen ($64 million) for the year ending March 31, compared with a previous prediction of 34 billion yen, according to a statement today. Mitsui O.S.K. said net income will probably be 17 billion yen, compared with an earlier 30 billion yen forecast.

The Tokyo-based companies are among shipping lines to have delayed the introduction of peak-season surcharges on Asia-U.S. container routes this year as retailers slow imports on concerns about consumer spending. Rates for chartering out commodity ships have also fallen 34 percent in a year on overcapacity, while fuel costs have climbed alongside higher crude prices.

“The biggest drag will be container-shipping,” said Janet Lewis, a Hong Kong-based analyst at Macquarie Capital Securities Ltd. “The dry-bulk sector isn’t going to clear up any time soon either.”

Kawasaki Kisen Kaisha Ltd., Japan’s No. 3 shipping line, reiterated its forecast for a 2 billion yen net income this fiscal year. It cut its operating forecast to a 5 billion yen loss from a 6 billion yen profit.

Car Shipments

The three Japanese shipping lines, which all reported first-quarter losses compared with year-earlier profits, have also suffered from declining demand for car shipments after the nation’s March 11 earthquake disrupted production. Vehicle exports plunged 68 percent in April, the biggest drop since the Japan Automobile Manufacturers Association began compiling the data in 1973.

“Cars hurt them in the first quarter,” said Lewis. “Still, that will probably be the highest profit source for them for the rest of the year.”

Mitsui O.S.K. fell 0.5 percent to 405 yen at the 3 p.m. close of trading in Tokyo. Nippon Yusen dropped 0.7 percent to 283 yen. K-Line declined 1.6 percent to 253 yen. All three shipping lines?have slumped more than 20 percent this year.

Container-shipping rates have fallen on Asia-U.S. and Asia- Europe routes as the global fleet expands and demand cools. The slowdown has prompted shipping lines to delay the introduction of a peak-season levy of $400 per 40-foot container on Asia-U.S. shipments to Aug. 15 from June 15.

The global fleet of dry-bulk carriers will also grow 13 percent this year, outpacing a 4 percent increase in traffic, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker. The Baltic Dry Index, a benchmark for commodity-shipping rates, closed at 1,278 yesterday, after falling for a 15th session in a row.

The price of 380 Centistoke marine bunker fuel, used by ships, traded at $686.50 a metric ton yesterday in Singapore. It’s jumped 55 percent in a year.

For the first quarter, Mitsui O.S.K. reported a loss of 8 billion yen, compared with a 20.8 billion yen net income a year earlier. Nippon Yusen posted a 7.2 billion yen loss after a 23 billion yen profit. K-Line had a 3.7 billion yen loss, versus a 15.8 billion yen profit.

--Editors: Neil Denslow, Terje Langeland

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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