Bloomberg News

Mitsui O.S.K., Nippon Yusen Cut Capacity, Forecast Losses

November 01, 2011

(Updates with comment from company in fourth paragraph.)

Oct. 31 (Bloomberg) -- Mitsui O.S.K. Lines Ltd. and Nippon Yusen K.K., Japan’s largest shipping lines, are cutting container services after reversing profit forecasts for this fiscal year to net losses. The shares fell.

Mitsui O.S.K. will reduce frequency on container routes as it expects a net loss of 4 billion yen ($51 million) for the year ending March 31, compared with a previous prediction of a 17 billion yen profit, the Tokyo-based company said in a statement today. Nippon Yusen expects an 18 billion yen net loss, compared with an earlier estimate of 5 billion yen in net income.

The shipping lines are trimming container capacity after a surge in the supply of vessels and as consumer demand slumped in Europe, pushing down transportation rates. Global container- shipping trade fell in August, normally the peak month for transporting boxes, in the worst performance in at least 11 years, Macquarie Capital (Europe) Ltd. said earlier this month.

“The rebound in the container market is being delayed,” Shugo Aoto, head of finance at Mitsui O.S.K., told reporters in Tokyo today. “Given the current financial crisis we’re being forced to take a very conservative view of the market.”

Stock Slump

Mitsui O.S.K. fell 4.1 percent, the biggest decline since Oct. 3, to 308 yen as of the 3 p.m. end of trading on the Tokyo Stock Exchange. Nippon Yusen dropped 2.4 percent to 201 yen.

Container vessels with capacity to haul more than 1 million 20-foot boxes may need to be idled or laid up because of overcapacity in the industry, The Baltic and International Maritime Council, a shipping trade group, said earlier this month.

Nippon Yusen said higher fuel prices, the strengthening yen and a reduction in demand for shipping caused by the floods in Thailand also weighed on earnings.

Kawasaki Kisen Kaisha Ltd., Japan’s third-largest shipping line, expects a net loss of 32 billion yen in the year ending March 31, compared with an earlier loss forecast of 30 billion yen, the Tokyo-based company said in a statement today. Tokyo- based Kawasaki Kisen’s shares declined 1.8 percent to 163 yen.

Japanese shipping line revenue has also been hurt by natural disasters. Japan’s largest earthquake on record, and ensuing tsunami, in March damaged car factories and led to the biggest tumble in vehicle exports on record. Floods in Thailand this month have crippled production at carmakers such as Honda Motor Co.

Thai Floods

“The biggest impact from the Thai floods on business is car transportation,” said Mitsui O.S.K.’s Aoto. “Car output could stop for several months.”

Vehicle exports dropped 3 percent in July, compared with a year earlier, following a 68 percent slump in April, the biggest drop since the Japan Automobile Manufacturers Association began keeping figures on them in 1973.

Gains in the yen against the dollar have also hurt earnings at the shipping lines.

The yen gained 4.5 percent against the U.S. currency last quarter to 77.06. It touched a post-World War II record of 75.35 today in Tokyo and traded at 78.72 as of 5:23 p.m. in Tokyo.

Mitsui O.S.K. had a net loss of 8.4 billion yen in the three months ended Sept. 30, compared with a profit of 27 billion yen a year earlier, the company said today in a statement. Sales fell 9.4 percent in the quarter to 368 billion yen from 406 billion yen.

Nippon Yusen had a loss of 4.9 billion yen in the period, compared with net income of 21 billion yen a year earlier, it said. Sales fell to 463 billion yen from 506 billion yen. Kawasaki Kisen’s loss was 15 billion yen, compared with a profit of 11 billion yen in the 12-month earlier period. Sales slid 5.2 percent to 253 billion yen, from 267 billion yen.

Higher fuel prices are also increasing costs for shipping lines. The price of 380 Centistoke marine bunker fuel, used by ships, traded at $698.50 a metric ton in Singapore on Oct. 28, a more than three-year high.

The Baltic Dry Index, a measure of commodity-shipping prices has dropped 24 percent in the past year to 2,018 points, as of Oct. 28 in London.

--Editors: Dave McCombs, Garry Smith

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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