【Containership】
Q.1 Please let us know route-wise profit and loss for 1st and 2nd Quarter.
A.1 Dividing the total earnings from Containership Business per service route,
as may be expected, loss making-routes are Asia-Europe and North-South trades,
which are balanced out by profitable Asia-North America trade, so the total of
Containership Business is expected to be zero.
Loss portion of Asia-Europe and North-South trades is almost same.
Q.2 Please advise your most recent freight rate in indices and premises of those for
2nd Quarter, and your view about overall profit-loss situation in the future.
A.2 Our own freight rate index for Asia-North America is close to 100, and that for
Asia-Europe trades close to 80 most recently. For these indices, factor of rate
restoration as of 1st August has not been included yet, so I expect that due to
the effect of the rate restoration, freight indices would come up by not less than
2-3 points.
As assumptions for 2nd Quarter, we set index for Asia-North America trades around 100,
and for Asia-Europe trades slightly over 80, which includes rate restoration starting
from 1st August to some extent, but does not include another rate restoration scheduled
on 1st September at all, which is being reported these days.
After freight rate is restored in August, we wonder how much it will gradually go down
and then how much again restored in September? We have included restoration in August
and slight negative adjustment but have not counted on another restoration in September,
which I suppose should be a rather positive factor for 2nd Quarter. Further, as slight
increase in cost savings is expected, so when we carry it through, 2nd Quarter or 1st
Half should go fairly well I believe.
What we are still concerned about is trend for 2nd Half. Considering various changes in
future circumstances, how much our business conditions are stabilized is quite opaque.
Q.3 In which do you see higher freight rate assumptions, comparing 1st Half and 2nd Half?
And please also tell us present situation about rate negotiations and future prospects.
A.3 Freight rate indices for 1st Half are an average for the term. So, that for Asia-North
America is around 100 for 1st Half, and 1st Quarter figure for Asia-Europe trade was awful;
2nd Quarter estimation being just what I touched on earlier. So, the average index of 1st
Half is in the 70s. In terms of indices for 2nd Half, for Asia-North America it is almost
same as 1st Half, and for Asia-Europe, 2nd Half index is about 10 points higher than 1st
Half. Considering such situation, as I touched on before, we have tried to add further
cost reductions, etc..
Overviewing overall freight rate movements, we feel like circumstances in Europe might be
severe, which is considerably related to economic situation in Europe.
On the other hand, with impact of new P3 network, including psychological effect, I hope
some mental factors for stabilization might emerge, as top sharers in our industry have
announced they will form an alliance from next year, if actually started.
Situation is also expected to be severe in North-South trades. I suppose tough situation
might continue there due to cascading of giant ships from Asia-Europe trades which are
mismatching for the trade size. We have decreased space for North-South trades, and
Intra-Asia trades for the past two years or so, rather to concentrate on East-West trades,
and so far our insight appears to have been almost right
Q.4 Would you advise us of your view about any possibilities that the P3 network will have
an impact on K”Line's business strategy such as investment or formation of service
network, etc.?
A.4 P3 is an alliance to be formed by Maersk, MSC & CMA, 3 top sharers in the industry,
starting from next 2nd Quarter in 2014. Coverage routes are Asia-Europe, Asia-North America and
Trans-Atlantic. They are making operational agreements, about which they made announcement
on 18th June this year. However, I understand that they have to receive permission from
regulators like ‘Directorate General for Trade and Competition’ for EU, probably FMC for
US, also Chinese authorities, etc. So, obviously this story will progress after all such
procedures are completed, and operations started in formation of an alliance; conversely,
conditions in Asia-Europe routes have become increaingly severe.
All of the P3 members are independent carriers which have intended to overwhelm other
players, but with business circumstances now being so severe, they are forming the alliance
to aim for cost reduction and rationalization, and prepare effective capacity allocation
just in line with cargo demand to further improve competitiveness in order to survive for
the coming few years.
So we positively view the movement as profession of strong intention to stabilize business.
We, K”Line, are a member of CKYH Green Alliance, and think that we have sufficient port
coverage and service frequency. In this regard, we will not take any immediate counter-
measures against formation of this new P3 network as of now. For the time being we will
watch and see how authorities of each country will correspond, and see to what extent
business operations are stabilized, and then will respond flexibly as needed.
【Dry Bulk】
Q.1 You have mentioned that as a background for profit decrease from 1st Quarter to 2nd
Quarter, voyages with profitable contracts of dry bulk, etc. were completed beforehand.
Would you explain about this in more detail?
A.1 Regarding shifts in voyage completion timing, taking Bulk Shipping Business as an
example, profit or loss is posted upon voyage completion. So whether a voyage is completed
on 30th June or 1st July affects quarterly profit of 1st quarter and 2nd quarter much differently.
Q.2 Ordinary Income for Bulk Shipping Business in 1st Half is expected to be 18.0 billion
yen and in 2nd Half 12.0 billion yen. As per as your explanation, your 2nd Half estimation
seems rather conservative, and so I suppose it could possibly reach around 18.0 billion yen.
About the same as 1st Half. Please give us your suggestion for that case as to what you can
count on as favorable factors. Are you just expecting dry bulk market to go up? Or, after you
fix some contracts for market exposure in your fleet, has your average profitability improved?
Please also advise us of your view for overall dry bulk market.
A.2 In our fleet, most large-type vessels, Cape-size, have almost been fixed with contracts,
and so there is almost no free portion. So, even in case market becomes weaker, profit from
this segment should not change so much. Regarding mid- and small-type bulkers, we have 25%
free portion in our Panamax fleet, which will affect our outcome to only some extent.
Talking about current market conditions, as cargo from Australia is comparatively coming out
in 1st Half, mainly Cape-size market rate has recovered to the level of about 15,000 dollars
per day since over a month ago. In terms of mid- and small-type bulkers, markets have not
boomed so much, but due to rather brisk grain movements, their market has somewhat recovered.
However, now toward summer, I suppose market might enter summer depression as usual, but still
it could be better than our original estimations.
Market assumptions set as of this April are estimations made under negative psychological
effect when markets were much worse. In reality, at this moment the rate level is above our
assumptions, and so, although just my personal view, market rate could swing upward by 20% or
so. There are almost no free vessels in our hands though, so you may understand that we can
still enjoy fruit from such positive swing.
【Car Carrier Business】
Q.1 What is the reason for cargo volume decline for 'Outbound'in 1st Quarter compared with 1st
Quarter of last year ?
A.1 Looking at loading results in Slide B-3 (page 11), outbound in 1st Quarter 2012 is 301
against 264 in 1st Quarter 2013. Then looking at 2nd, 3rd and 4th Quarters in 2012, you can
see that 1st Quarter 2012 is much more than usual. This is because exports from Japan,
especially to Australia, increased as replacement from Thailand due to effect of severe
flooding in Thailand at the end of 2011. That is reflected in this part.
Q2. Why did profit increase despite decreased loading results in 1st Quarter year-on-year?
A.2 The reason why profit increased despite cargo decrease is because we put greater weight
on profitability from this year; for example, we cleared off some low freight cargo ex China
to Middle-East, and we could therefore enjoy considerable increase in earning power.
Q.3 As profit from Car Carrier Business is said to increase because of further efficiency in
vessel deployment during 1st Quarter, looking at the number of your fleet, 4-vessel decrease
in comparison with previous year, I wonder whether you have made additional profit by way of
returning chartered vessels and thereby reducing that cost. Is this way what you have done?
Also looking at your order book of newly-built vessels, as you are scheduled to receive 4 PCTC's
in this 2nd Half, can we think of this as causing your profitability to do down reversely?
On the other hand, can it cover a worsened scenario in which some automakers will increase
their product volume?
A.3 Actual story is not that the number of fleet was reduced to decrease surplus space and cost.
Rather, as for non-profitable cargoes, especially those in trans-Atlantic which have returned
lower profitability so far, we have gained some price up through negotiations which is also
reflected in our profit.
Regarding decline in the number of car carriers, most vessels returned were of older age and
with less loading capacity, say, 2,000 unit-type or so. We will return such vessels first, and
in turn will replace 6,000 unit-type vessels with lower fuel consumption in the coming several
years to grow earning power per vessel as one of our tactics.
As for cargo volume in the future, when we ask our customers whether exports from Japan will
increase, due to yen depreciation, they just answer that they will not increase so much.
However, it is reported in today's newspaper that, in reality, toward 2nd Half, exports from Japan
could possibly grow. In that sense, I feel like our estimation might be slightly conservative.
(General)
Q1. About impact from exchange rates, please let me know reason of profit/loss by exchange rate.
Do you think same profit/loss will happen again in 2nd Quarter ?
A1. As I explained in 2 categories, there are two kinds of exchange rate effects.
One is factor to improve Operating Income because most ocean freight is in U.S. dollars.
Our premise of exchange rate in August and September is 100 yen per U.S. dollar, so if yen keeps
weakening further it will be positive factor to increase profit.
Another factor in Non-Operating Income is mainly valuation profit which comes from revaluation
of our various overseas subsidiaries' debt in Japanese yen. On the basis that exchange rate will
not change so much, we think such valuation profit will not happen so much after 2nd Quarter.
Anyway we think there will not be much impact from exchange rates in Operating Income nor in
Non-Operating Income as far as current exchange rate levels remain unchanged.
Q2. Valuation profit from exchange rate for 1st Quarter, which business segment is it from mainly?
For example, Bulk Shipping Business and/or Containership business?
A2. Valuation profit from exchange rate due to overseas subsidiaries' debt in Japanese yen
in 1st quarter is 3.8 billion yen.
Roughly Containership Business is about 10%, 90% is other than Containership business.
As I mentioned, on the contrary it caused valuation loss in Offshore Support Vessel Business.
Q3. Are you factoring in valuation profit or loss from exchange rate for 2nd Half ?
As premise of exchange rate is 95 yen per U.S. dollar for 2nd Half against that of 100 yen
for 1st Half, are you including valuation loss in estimate of 2nd half ?
A3. We ae not factoring in any valuation profit/loss in estimate at all, including 2nd Quarter.
This means there will be valuation loss in Non-Operating income if current 95 yen remains
unchanged until end of 2nd Quarter.
Q4．Please let me know progress of situation for bunker savings.
A4． The movement for bunker savings has spread to all shipping conpanies nowadays, and our
Company also does bunker savings thoroughly with "Fuel Cost Control Department" which was
set up from this 1st April to focus on saving bunker consumption. We now have new data of
current bunker saving situation which is concept of ton-mile. This is how much bunker is
used to transport a certain amount cargo for a certain distance, and as we think evaluation
by ton-mile, which means how much bunker is used Per ton-mile, is most important.
Ton-mile comparison between January-March and April-June of this year is as follows: 4.3%
saved in Containerships, 4.6% saved in Large Dry Bulkers and 5% saved in Small-medium-size
Dry Bulker. So we could cut bunker cost drastically.
Entire company's annual bunker cost is somewhat more than 200 billion Japanese yen on basis of
total bunker quantity of around 4 million metric tons per year, so I think you can calculate
how much is effect of bunker savings from figures as mentioned.
