Q-1: On page 16 of the briefing materials, there is a chart showing changes in ordinary income excluding exchange rate effects. Could you please explain in more detail why costs rise ahead of profits when the number of vessels and the total units carried increase?
A-1: The increase in ship costs is temporary. While several LNG-fueled car carriers will be introduced in FY2025, there will be changes in the fleet, such as the redelivery of short-term charters. Depending on the financing method, expenses and cash outflows may occur upfront, and a portion of the short-term charter hire may also be paid upfront. On the other hand, freight rates are set in accordance with our investment discipline, taking into account factors such as the amortization period and discussions with our customers. So this results in the difference.
Q-2: The FY2025 plan should assume a decline in spot freight rates, but this is not stated in the briefing materials. I am guessing it is included in the “Increases in vessels and operational costs” item in the waterfall chart, but could you tell us more?
A-2: The materials do not specifically explain spot freight rates. As supply and demand come into balance toward FY2026, freight rates are expected to stabilize to a certain extent. However, since “K” Line has a relatively low ratio of spot cargo, the impact should be limited, and part of the decline is reflected in the ordinary income level decrease from 100 to 93. In addition, the red bar labeled “Tariff impacts” on the waterfall chart reflects assumptions including a decrease in total units carried to North America, the resulting easing of transport capacity, and a further decline in freight rates, including spot cargo.
Q-3-1: On the left side of page 18 of the briefing materials, there is a graph showing contract finalization rates. Like last year, is your intention to indicate that contracts have already been finalized through FY2026?
A-3-1: Yes, that is correct. We intended to convey that, while contracts are renewed every year, we are also steadily securing agreements for future periods.
Q-3-2: I do not see any data provided on freight rates. Could you share how the contract freight rates for next fiscal year are shaping up? Could you also comment on the freight rates currently under contract?
A-3-2: We do not disclose specific freight rates, but in our explanation last year, we said that freight rates had risen by about 10% from FY2022 to FY2023. In fact, from FY2023 to FY2024, freight rates actually rose by about 3–4% on a performance basis. On the other hand, as we explained earlier, freight rates are expected to stabilize somewhat in FY2025 and FY2026 as supply and demand come into balance, but we do not expect a large drop. Regarding the freight rates currently under contract, we will refrain from commenting on that.
Q-4: Regarding the ordering and operation of eco-friendly vessels, other shipping companies—particularly the two other major Japanese shipping companies—appear to be taking similar initiatives. How do you view this situation?
A-4: I think the number of vessels we have ordered is similar to that of other companies. What sets us apart from other companies is our close customer engagement, a point emphasized several times throughout the briefing. We have solid relationships with customers in advantageous positions, proactively make a variety of proposals, and have reliable access to the information our customers possess. These strengths enable us to plan and pursue future developments, including our shipping route network. We are well-positioned to offer a wide range of proposals on eco-friendly vessel.
Q-5: It seems that “K” Line has more spot contracts than long-term contracts for High & Heavy cargo. Could you tell us approximately how large the share of spot contracts is? You also explained that the volume has decreased due to the slowdown in market growth. I understand this is a business subject to fluctuations based on market growth and trends. Could you please share “K” Line’s unique initiatives and strategies for growth that help minimize exposure to market volatility?
A-5: While we refrain from disclosing the exact ratio of spot contract cargo for High & Heavy and the length of those contracts, this category is generally handled through spot contracts or contracts with a duration of around one year. In addition, transportation contracts for project cargo are tied to the duration of each project.
In fact, the market softened slightly in FY2024, but it is difficult to forecast demand for High & Heavy cargo. Rather than being tied to market trends, we are seeing cases where our initiatives are recognized by customers, resulting in an increase in contracts. As we build a solid track record, that recognition further expands our business, creating a positive cycle of growth. Meanwhile, as projects continue to be developed across various countries and regions, we anticipate that demand may exceed expectations. Therefore, we are not overly concerned about future demand. Rather, we believe it is more important to proactively and strategically incorporate such demand into our cargo portfolio.
Q-6: At the recent financial results briefing, you mentioned that current tariffs have not had an impact on “K” Line. Could you provide any updates on this, including the latest developments and outlook for future bookings, etc.?
A-6: At the time of the FY2024 full-year results announcement, we explained that there had been no impact from tariffs at that point. Even now, after going through April and May and receiving bookings for June, we do not see any significant impact. However, given the conflicting information surrounding U.S. tariffs, we believe our customers are carefully considering their plans—including whether or not to proceed with shipments. As of now, we do not see a significant impact on bookings for June. That being said, on July 8 the temporary suspension of the 25% tariff increase will expire, and it will be important to watch the developments that follow. We will closely monitor the possibility of an impact starting in the second quarter of FY2025.
Q-7: You mentioned that the number of medium- to long-term contracts is increasing. Could you please provide more details on this development? For example, could you provide details such as the typical duration of the medium- to long-term contracts, whether they include volume guarantees, what proportion of total contracts they represent, and any other key points worth noting?
A-7: The increase in medium- to long-term contracts is, in our view, driven by several factors, including the COVID-19 pandemic. Space became extremely tight, and securing sufficient space emerged as a major concern for our customers. We serve a diverse range of customers—some prefer short-term arrangements, while others favor medium- to long-term contracts. In terms of medium- to long-term contracts, agreements with a duration of around 3 to 4 years are being established as medium-term contracts. As for volume, it is not necessarily a full guarantee, but some customers agree to arrangements such as specifying a certain level—for example, through a Minimum Quantity Commitment (MQC). The contract situation varies depending on the customer.
Q-8-1: I have a question regarding the profitability and investment efficiency of eco-friendly vessels and heavy oil-fueled vessels, as presented on pages 11 and 12 of the briefing materials. I would like to know the current situation and how these aspects are expected to change from 2028 onward. First of all, regarding the current situation, are environmental value and costs already reflected in the freight rates, and are the profitability and investment efficiency comparable to heavy oil-fueled vessels? Alternatively, starting in 2028, how significantly is this situation expected to change in response to market developments? Could you also explain how your earnings structure might evolve? Currently, to what extent are you able to pass on the higher ship price of eco-friendly vessels through freight rates? Additionally, how do you expect your revenues and investment efficiency to change due to the impact of the IMO GHG levy taking effect in 2028?
A-8-1: I explained that we currently have 9 LNG-fueled vessels in operation, and it is true that capital costs are rising as the prices of new vessels increase. Including this point, we propose freight rates to our customers based on our investment discipline, and obtain their agreement. These contracts are basically long-term contracts, and extend beyond FY2028.
Meanwhile, starting in 2028, the IMO GHG levy will take effect worldwide. The levy is expected to increase each year after it takes effect, but even in its first fiscal year, the CO₂ emission levy cost for an LNG-fueled vessel could be as low as one-third that of a heavy oil-fueled vessel. By presenting customers with the overall costs—including freight rates and CO₂-related penalties—we are currently in discussions with environmentally conscious customers about whether they prefer to use eco-friendly vessels or, at least for the time being, continue with heavy oil-fueled vessels.
Q-8-2: Can I understand that while eco-friendly vessels currently meet your investment discipline, it remains the case that heavy oil-fueled vessels offer higher profitability and capital efficiency? Do you believe this situation may reverse after the IMO GHG levy takes effect in 2028?
A-8-2: Currently, since our heavy oil-fueled vessels have already depreciated to a certain extent, a straightforward comparison is not possible. However, due to the lower initial cost of such vessels, they may show higher investment efficiency. Our heavy oil-fueled vessels will eventually be retired over 30 years, and they will be replaced by LNG-fueled and zero-emission vessels.
Q-9: On page 14 of the briefing materials, the target for 2030 is shown as a 15% increase in net ordinary income compared to FY2024. However, based on the earlier explanation of your investment plans, this growth rate appears relatively modest. Does this mean that you are not factoring in much of a freight rate increase in response to the anticipated supply growth? You also mentioned a rising share of eco-friendly vessels and High & Heavy cargo, which suggests that freight rates could increase. Are such expectations included more as upside earnings potential (plus alpha)? Could you elaborate on the assumptions and thinking behind your earnings outlook?
A-9: The 15% increase in net ordinary income targeted for FY2030 is based on the assumption that freight rates will gradually adjust as supply and demand come into balance starting around FY2026. We see this as a stabilization at a level that enables sustainable business operations. Looking ahead to FY2030, if we are able to capture additional upside earnings potential—such as through supply-demand balance or shipping network reorganization—we believe that would be incorporated into the plus alpha portion.
Q-10: I am interested in your view of the USTR-imposed port entry fees and their potential impacts. Currently, you have many medium- to long-term contracts in place. If port entry fees were to increase, would you be able to pass those costs on through freight rates under your contractual arrangements, etc.? Please also share any updates on your discussions with customers regarding this matter.
A-10: There is currently a high degree of uncertainty regarding the USTR’s application of port entry fees to car carriers. We are sharing the available facts with our customers. We do not yet know how we will respond or how our customers might adjust their shipping plans if the measure is actually implemented starting in October 2025. Therefore, I cannot comment on specifics at this time.
Q-1: On page 29 of the briefing materials, the earnings outlook shows a 25% increase in net ordinary income for FY2030 compared to FY2024. However, on an annualized basis, this translates to a growth rate of less than 5%. While this may be sufficient for a stable business, such a rate appears insufficient to drive “K” Line’s overall growth. Given this, is it appropriate to view this business from a growth perspective? Also, considering that the Dry Bulk segment has relatively low profit margins overall, how is Coal & Iron Ore Carrier Business positioned within the segment?
A-1: The main role and strength of Coal & Iron Ore Carrier Business is the ability to provide stable earnings for the company. Based on this, we are aiming for the growth outlined here as one of our targets. In addition, we aim to capture further upside earnings potential by expanding our cargo portfolio, particularly through growth in emerging areas such as reduced iron and bauxite. With regard to the profit margin for the Dry Bulk segment overall, there may appear to be a slight mismatch between the number of vessels and the profit margin. However, through 2030, as we accumulate stable earnings and gradually replace our fleet with more competitive vessels, we expect profit margins to improve. In addition, for both Capesize as well as Panamax and smaller sizes, we aim to improve profitability and capture additional upside earnings potential by enhancing vessel deployment efficiency, through KPI and vessel operation efficiency improvements and better-balanced fleet portfolio management.
Q-2: Regarding partnerships and M&A, are there any factors in Coal & Iron Ore Carrier Business that could benefit from acquisitions, such as economies of scale? Could you share which areas within Coal & Iron Ore Carrier Business could benefit most from partnerships or M&A strategies?
A-2: We intend to carefully consider partnerships and M&A—as well as strategies to enhance the strengths of Coal & Iron Ore Carrier Business—in areas that will accelerate overall business growth, all within the scope of our investment discipline. We are not necessarily pursuing scale alone, but if there are partnerships etc. that can improve our safety, quality, and vessel operation efficiency, we will actively consider them.
Q-3: I would like to get your view on the current competitive environment. Given your competitors, as you enter into medium- to long-term contracts with your customers, how will freight rates be affected compared to the past? In terms of demand, the Chinese market does not appear to be as strong as before. Could you share your current understanding and perspective on the competitive environment, including this point?
A-3: In the industrial sector, we believe that strong safety and ship quality management, along with high service quality, are key factors in securing medium- to long-term contracts. In addition to further strengthening these capabilities, we aim to differentiate ourselves by firmly maintaining our strong customer base, one of our key strengths. By staying close to our customers, understanding their evolving needs—including those during the transition to eco-friendly vessels—and providing services and making investments aligned with their growth, we intend to remain competitive in the current market environment.
Q-1: Can you share any updates on the situation for acquiring new contracts over the next five years or so compared to last year? Also, it appears that you have secured more orders than before, compared to other companies. What do you see as the background to this increase in orders?
A-1: Compared to last year, we have been getting more new contracts. Although there are some cases that we have not been able to disclose due to contractual commitments with customers, I am pleased to report that we are steadily securing new projects.
We have been in negotiations for a considerable number of different projects, and among them, there are several in which “K” Line was selected ahead of others. We believe this is because our track record such as in ship management outside Japan was recognized by customers.
Q-2: Regarding LNG demand, I understand that perspectives are evolving on LNG as a practical solution due to the prolonged Russia-Ukraine conflict, as well as shifting green energy policies in the United States, Europe, and elsewhere. What is “K” Line's perspective on LNG? Also, based on that outlook, what do you think you need to do?
A-2: We understand that the push for decarbonization, which may have been somewhat excessive recently, is starting to be reconsidered, influenced by changing public views on green energy and the Trump administration’s stance on decarbonization, etc. In this context, I have no doubt that the value of LNG is being reassessed. Since the beginning of this year, various LNG projects—especially in North America—have been progressing, and we aim to stay alert to these developments and secure new business opportunities.
On the other hand, we believe decarbonization is a long-term effort that must be addressed, so we intend to pursue it concurrently across the entire company.
Q-3: Regarding orders for LNG carriers, I understand that almost no LNG carriers are being built in Japan. Do you perceive any risks regarding this, especially considering policies in the United States and other countries?
A-3: The Trump administration has advocated for vessels to be built in the United States, but I believe it will take a considerable amount of time to actually establish the infrastructure and systems needed for commercial shipbuilding there. Currently, China and South Korea account for the vast majority of LNG carrier construction worldwide; most vessels have been built in these two countries. Although there are ongoing discussions about current policies, etc., I believe that, in reality, the status quo will continue going forward. Of course, if LNG carriers can be built in Japan, we would be interested in pursuing negotiations. However, I expect that restarting such shipbuilding will likely not be easy. Therefore, we intend to continue placing orders and building vessels at shipyards in China and South Korea while maintaining good relationships with them.
Q-4: Regarding demand for LNG, while I believe that it will certainly be recognized as a low-carbon energy source in the medium to long term, it seems that China's LNG demand is not necessarily strong at present. In addition, consumers in Asia, as well as South & Southeast Asia, as focus emerging markets for “K” Line, are known to be quite price sensitive. Given the current situation, there may be some concerns about whether structural LNG demand can truly be relied upon over the medium to long term. Could you please share your views on this? Also, when it comes to securing contracts for LNG carriers, do you have any concerns about the outlook for LNG demand?
A-4: We do believe that LNG is being re-evaluated as part of the shift toward low-carbon societies. Rather than seeing any cause for concern, we feel that LNG is being reassessed and that global demand is actually strengthening. In addition, we do not believe Europe can easily increase imports from Russia. As for China, while it does import a significant amount of LNG from North America, that supply is destination-flexible, which means it can be redirected to other markets as needed. We also believe price is a factor. With LNG production now increasing, its price as a commodity is likely to stabilize to some degree. Taking economic viability into account, we expect strong demand for LNG to continue for the foreseeable future.
Q-5: I would like to ask about your medium- to long-term contracts. I understand that there are more and more LNG contracts that allow the destination to be changed. I also hear that there are fewer long-term 20-year contracts. At the same time, I believe emerging Asian markets, India and other countries tend to be relatively price-sensitive. This raises concerns about whether LNG carriers will be able to continue securing traditional medium- to long-term contracts as they have in the past. Could you share your thoughts on this?
A-5: Let me explain recent trends in medium- to long-term contracts and short-term contracts. First of all, since the start of the war between Russia and Ukraine, the number of long-term contracts of 10 to 20 years has been increasing. We believe that contracts that allow the destination to be changed for LNG exported from North America can more flexibly respond to shifting demand. There is no definitive consensus on the ratio of medium- to long-term contracts to short-term ones, but our impression is that currently around 60–70% are medium- to long-term. We expect this ratio to remain more or less the same going forward.
Q-6-1: The relationship between the number of LNG carriers and your earnings forecast is very clear, but could you tell us roughly when we should expect a significant increase in earnings? I understand that LNG carriers have high upfront costs, such as loan interest and depreciation, in the initial years, and profits on the P&L statement generally increase after a certain number of years. Do you expect that by 2030, your upfront costs will have been largely absorbed and profits will begin to be recognized? Or is there potential for profits to increase even further beyond that point?
A-6-1: Regarding our LNG carrier earnings forecast, we expect the interest burden to be substantial initially, so it will take some time after vessel delivery before we see profitability. In addition, while “K” Line has previously participated in such as consortium projects with a relatively small share, we are now securing an increasing number of contracts as the lead company. Also, as just explained, we expect earnings to improve over a period of time after vessel delivery, following the upward curve shown on page 45 of the briefing materials.
Q-6-2: If possible, could you tell us the specific percentages of the small and large shares?
A-6-2: Since we are working with various partners, I cannot give you any specific figures.
Q-7: Regarding the areas where your strengths can be leveraged, as outlined on page 38 of the briefing materials, could you please tell us which fields or areas “K” Line has distinctive features and competitive advantages compared to shipping companies that currently have a higher market ranking than “K” Line?
A-7: I think that the higher-ranking shipping companies also have very high-quality ship management and responsiveness. In this regard, we are working diligently on the same thing. However, “K” Line has established companies in Europe and elsewhere, and we are accumulating customer service expertise abroad. In addition, we currently have marine/technical superintendents stationed at six locations worldwide for ship management, and we are actively working to strengthen our system and these bases to enable rapid response to our customers’ needs. I think that these aspects are becoming our strengths.
Q-8: Turning to a technical point, it seems like it would be beneficial if LNG carriers could carry liquefied CO₂ during their ballast voyage after LNG discharging. It could be transported to the LNG source location and then stored underground using Carbon Capture and Storage (CCS) technology. I understand that the vessels used in the Northern Lights project and similar initiatives are specialized for liquefied CO₂. However, could you please tell me whether it might be technically feasible in the future for LNG carriers to transport LNG on the outbound voyage and then carry CO₂ on the return trip? Also, is there any ongoing research in this area?
A-8: Reducing ballast voyages is an important initiative, and if cargo can be carried on the return journey as well as the outbound journey, the vessel's earnings will increase significantly. We are also considering whether it is feasible to load other cargo as ballast, but there are two aspects to this. The first is whether such cargo will be available from the ports where the LNG is discharged. The second point is technical: whether the same tanks on a vessel can be used for different gases varies slightly depending on subtle cargo properties, temperature and specific gravity. For liquefied gases, including LNG, various studies are being conducted on whether LNG and liquefied CO₂ can be transported by the same vessel. Unfortunately, the conclusion so far is that this is impractical. However, LPG and ammonia can be transported by the same vessel.
Q-9: On page 38 of the briefing materials, you stated that the goal is to have 100 LNG carriers and more in the medium to long term. However, I imagine that vessels completed after 2030 will be used until 2050. On the other hand, in light of the shorter contract terms and future trends in LNG demand, could you clarify why you believe increasing the fleet size to this extent will truly contribute to “K” Line’s stable earnings? You mentioned that you are considering either scrapping vessels whose contracts have expired or repurposing them as FSUs or FSRUs. Could you share your thoughts on why you believe expanding the fleet will help maintain stable earnings over the long term?
A-9: As shown in the Global LNG Supply-Demand Outlook on page 35 of the briefing materials, current demand stands at 400 million tons and is projected to exceed 700 million tons by 2050. Within that context, our target of operating a fleet of 100 LNG carriers by the mid-2030s is not an upside figure. Rather, it reflects a modest increase added to the anticipated global demand growth. Of course, it will be essential to secure vessels and establish a crew structure, but our plans are based on the forecast that global LNG demand, in terms of projects, will continue to grow.
In addition, regarding the shortening of contract terms, contracts have become longer since the war between Russia and Ukraine began. With regard to LNG, there is also the issue of how much inventory can be held on the receiving side, so demand cannot be met through spot contracts alone. In Europe and China, it is possible to store LNG underground, but in other places it is not possible to hold long-term inventory. For this reason, it is difficult to rely on spot contracts, and we expect that long-term contracts will remain the norm and continue to increase going forward.
Q-10: You mentioned that liquefied gas transport has strong earnings potential going forward. As you look to increase LNG transport, how do you envision your long-term fleet portfolio for LNG and other liquefied gas transportation? Could you share your thoughts on balance?
A-10: “K” Line’s liquefied gas business is still not large-scale. We began actively engaging in LPG transport from the early stages of industry consolidation for LPG in Japan, and we currently operate 5 LPG carriers. As LNG production expands, we expect an increase in associated gases such as LPG and ethane. To keep pace with this growing demand and establish this area as a core pillar of our business, we aim to further strengthen our operations.
Q-11: Regarding the increasing numbers of vessels on page 38 of the briefing materials, it seems that the investment share and risk exposure are expanding faster than the actual number of vessels. From a risk-return perspective, can this still be seen as contributing to stable earnings, despite the risks posed by shorter contract durations? Also, am I correct in saying that your ownership share of the fleet is increasing compared to the vessel count itself? What can you tell us about this?
A-11: Regarding risks, we will, of course, manage them carefully through risk hedging. As for returns, we will continue to build up projects that meet our investment discipline. Basically, our approach remains unchanged: we will focus on acquiring long-term, stable contracts going forward.
