Q.1 Since 3rd Quarter profit from Containership seems so bad, considering factors as freight and exchange rate, etc.,
is there any negative factor other than freight?
A1. There is no special additional factor other than freight decline.
3rd Quarter results are mainly the result of freight decline even though we succeeded to recover some cost savings.
Q2. As your assumption of 4th Quarter freight index is improved from 3rd Quarter, how do you think freight will be?
A2. We think loading factor of each carriers before Lunar New Year was more than 90% and that is why
freight restoration in January has almost fully succeeded.
Reduction of capacity which we call Winter Program was about 10% before Lunar New Year
and it is expected to be about 30% around one month period after Lunar New Year in both Transpacific (Asia-North America)
and Asia-Europe compared with capacity of summer peak season.
So we think loading factor will not be much worse even though there is cargo decrease due to Lunar New Year.
In addition carriers should be conscious about freight restoration because each carrier incurred big loss last year.
We think economic trend in North America will be better this year than last year.
As cargo volume trend should be comparatively strong, including the pick up after Lunar New Year,
we expect freight market will not decline so much.
Q3. How are the January freight negotiations going for annual contracts in Asia-Europe?
A3. We hear that most annual contracts of major European customers were extended at spot level,
which was lower level than we expected. We are not affected so much by those those contracts
as share of those European customers' annual contracts in our transport volume is just a small percentage.
Freight negotiations for annual contracts with Japanese customers which start soon should succeed
to some extent as long as current good spot rate continues for some time.
Q4. What are your thoughts about supply and demand in 2014?
A4. Regarding supply and demand, we think supply will increase around 7-8%, same as Alphaliner.
Talking about demand, volume has increased strongly since last summer, especially in Transpacific and Asia-Europe east-west trades.
Annual increase of last year will be around 3% in Transpacific and 4% in Asia-Europe with increase ratio being almost twice those figures,
especially in latter half of last year. Although new large ships will be added to East-West routes,
we think supply and demand will be almost balanced as the trade can well absorb them as long as total demand increase at least 5% this year.
So we hope supply and demand situation will be better this year compared with 2013.
Q5. As I think your cost level is generally low, is it difficult for other carriers to catch up?
Please let us know how you will continue cost savings.
A5. Main factors of cost savings are primarily to decrease cost of container box by sale and lease back;
to deepen slow steaming; rationalization of service with alliance members;
and recent change in container chassis arrangements for inland hauling which is a shift from containership
companies' service to customer's own arrangement.
As change of container chassis arrangement started only 2 years ago, we will proceed further.
Slow steaming has not yet expanded to all mid-small vessels which means there's still further room for cost savings.
In addition, we are trying to further decrease empty container transfer costs after outbound voyage
by more careful box control which we call yield management.
Q6. As your deficit is comparatively small compared with other carriers,
is there some difference in your containership business?
A6. If there are differences between us and other carriers, one is to take annual term contracts
or freight by spot market in terms of freight and another is portfolio of trade route.
Our company is gradually increasing weight on what we say east-west routes, especially transpacific
trade from Asia to North America. We are recently shrinking North-South and Inter-Asia routes due to low profitability.
Q7. Considering severe business situation, such as hearing news of sale of assets of other liner companies,
how do you think it will effect business circumstances?
A7. From various reports that there are some liner companies with huge losses in 2013,
business situation of each carrier is very severe, which
cannot be tolerated much longer, and this will be one of the factors to push freight rates up.
Q8. Please explain effect of recent news in industry regarding delay of procedures for P3 network
and merger of Hapag-Lloyd and CSAV.
A8. We think P3 network will be rather positive factor that will make for a more stable market.
It is said that start of P3 will be from May or June because it has not yet been authorized
in North America and China.
We hope that P3 procedures will go smoothly for the sake of stabilization in the industry.
With regard to merger of Hapag-Lloyd, it will be a 4th player in the industry so we will wait and see regarding that situation.
[Bulk Shipping Business】
Q1. Please explain about freight restoration of some cargo in Car Carriers.
A1. It was mainly in Trans-Atlantic trades which operate between Europe and America.
We asked some of our main customers for acceptance at the time of extension of contracts,
and we succeeded in rate restoration of freight to some extent.
Q2. About Dry Bulk Carriers which had volume decline as you expected
due to effect of seasonal weather flooding, etc.,
what are your thoughts regarding current situation, and when do you think it will restart?
Also, what is your current view for market of next year? As you mentioned
about developing countries, how do you view demand?
Do you think market for next year will be strong since new ship deliveries will decrease so much?
A2. Market for Dry Bulk Carriers is in downtrend now which is effected by seasonal factors.
There is reduction in iron ore production due to bad weather in the southern hemisphere.
We think this is about the same effect as every year.
In addition, we expect latest biggest factor will be China, buyer of iron ore, but itis Lunar New Year holiday right now.
We see another factor is the matter of timing of new ship deliveries.
There is general tendency in shipping industry that new deliveries at year-end are put off
until the beginning of the year in order to be counted as being younger.
So this may be background of increase in capacity during January,
which we think is just a temporary excess of supply.
About prospects from now, we think market will gradually recover after Lunar New Year.
Small/mid-size ships especially will enjoy uptrend because it will be shipping out season
for grain from South America.
Talking about next year’s market, we think we can take a rather optimistic view,
one reason being decreasing supply of new ship deliveries.
According to Clarkson's vessel supply analysis, it is said that
actual number of deliveries of new ships in 2013 was about 720-730 vessels,
although previous forecast was 1,200 vessels worldwide.
So actual new deliveries in 2014 will decrease same as in 2013,
although forecast is about 950 vessels so far.
Additionally, regarding cargo volume trend of iron ore for China
which has very big impact on Dry Bulk market,
there was increase of 76 million tons (10%) in 2013 compared with 2012.
It was announced that steel production also increased 60 million tons (7.5%) in 2013 compared with 2012.
We hear that China basically uses imported iron ore subject to its price
because quality of Chinese domestic iron ore is not so good.
The reasons for our optimistic view are as above.
Q3. About investment for Dry Bulk carriers, your current fleet increased from last year-end
according to your latest fleet data.
Please explain about your fleet upgrade plan.
Do you intend to increase your Dry Bulk fleet or it is just temporary matter?
A3. Our Dry Bulk fleet is increasing this year by new deliveries which were ordered before;
on the other hand, we are gradually proceeding with fleet disposal by either selling off or scrapping older vessels.
Our intention is not just expanding our fleet.
Besides, our situation is one in which we now have no spot exposure, what we call free vessels.
For example, our Cape-size fleet is almost 100% fixed by long-term contracts at present.
Our basic business plan is that we will not increase spot exposure so that situation will not change, although
we may invest new ships or arrange short-time charter in order to balance supply and demand at the time.
Q.4 In Bulk Shipping Business, 6.7 billion yen of Ordinary Income is expected for the 4th Quarter.
In spite of the fact that until the 3rd Quarter, around 10.0 billion yen was earned for each quarter,
it is expected to fall suddenly in this 4th Quarter. Please let us confirm whether you
see any extra matters except for the revaluation loss from exchange rate?
A.4 As Ordinary Income for Bulk Shipping Business in the 4th Quarter looks lower than 1st–3rd Quarters,
one factor is that exchange rate revaluation gain by foreign subsidiaries’ debt in Japanese yen
of 5.3 billion yen was counted as a total of all businesses for the 3rd Quarter while
2.0 billion yen of revaluation loss is included in the 4th Quarter estimation,
based on the assumption of exchange rate at the end of the 4th Quarter being 103.0 yen per U.S. dollar.
Please understand most of the balance is affecting Bulk Shipping Business. Further, in dry bulk
business, due to usual seasonal factors such as Lunar New Year in China
and rough weather around loading ports, market conditions become worse in the 4th Quarter,
which we have already included in our present forecasts.
In addition, for mid/small-size dry bulkers, we have also added some impact from
trade embargo of mineral ores recently implemented in Indonesia.
Q.5 Quoted in Slides A-2 and A-4 ‘Efficient Tonnage Allocation’ with explanation about
‘mainly efficient allocation of vessels in Bulk Shipping,’for year-on-year basis Slide A-2
shows until 3rd Quarter, plus 7.2 billion yen in total from this item and in A-4, as full-year basis, plus 7.5 billion.
Please advise whether we should understand you have not yet fully counted this
as an improving factor in 4th Quarter’s estimate because we cannot know until it turns out
just the same as your explanations in the previous meeting, and we can expect a few billion yen
of improvement per quarter from your present forecasts when things are going in a rather normal way.
A.5 The factor of ‘Efficient Tonnage Allocation’ quoted in the tables is mainly effect from
decrease in days waiting for loading cargoes and of so-called ‘ballast voyage’ which is the term
when vessels move empty without cargo onboard, and along with those factors also effect
from slow steaming. The point is how we can achieve even more than what we have planned now,
which is difficult for us to foresee beforehand.
Q.6 Regarding the cartel issue for Car Carrier Business, as you said that the provision was recorded
related to the Anti-Monopoly Act in preparation for losses that may occur in conjunction with
‘advance notice of draft orders’ from the Japan Fair Trade Commission, concerning the U.S and the E.U.,
please tell us when it is taking place and your view of estimated amount.
Q.5 I am afraid I have to requestyour kind understanding since it is still under investigation
in the U.S. and E.U., and so at this moment it is difficult to make any comments.
【Offshore Energy E&P Support & Heavy Lifter】
Q.1 As for Offshore Energy E&P Support & Heavy Lifter Segment, for the 4th Quarter
1.9 billion yen of loss is estimated, which is the biggest loss comparing to all the other quarters in this Fiscal 2013.
As President explained earlier in this segment that Heavy Lifter Business has been facing rather hard battle,
what is your view about the background? Will it worsen as a trend of overall business circumstances, or are
any special conditions expected to be concentrated in the year-end?
A.1 Market for Heavy Lifter Business regrettably experienced further downturn comparing this 1st Half with 2nd Half.
Since we completed amortization of goodwill in the last fiscal year, which had accrued after
we bought the heavy lifter company in Germany, net income improved for year-on-year.
However, business circumstances turned harsher and since last summer various projects have come into, say,
out-of-season, and gap between supply and demand has widened which further worsen the market condition.
Q.1 You appear to express nuance that profit for this financial year could improve slightly more than present forecasts.
Which business segments did you mean?
A.1 Dry bulk business and oil tanker business which do not incur big impact as their business size is small.
Q.2 Since the problem of cartel seems to be coming near the end, once again please advise your idea
regarding how you are planning to spend cash and deposits, including return to shareholders, etc.,
in the future, maybe after the next financial term?
A.2 I understand that we are surely holding more cash and deposits on-hand than necessary.
First, in terms of issues relating to Anti-Monopoly Act, I suppose almost all matters to arise in Japan
might already be in sight now, but they still remain undetermined in the U.S. and E.U,
where we will be able to see the situation more clearly in the latter part of this year, or next year.
After we have clearer view about this issue, we will then definitely spend our cash and deposits effectively.
However, I firmly believe our target ‘Reinforce Financial
Standing’ set in our present mid-term management plan is an order to be accomplished by necessity.
We will first fulfill the goal to decrease in interest-bearing debt.
While our target in the mid-term management plan is 490.0 billion yen,
we will put first priority on reduction of interest-bearing-debt, and achieve debt-equity ratio
below 1.0, which we must do at any cost.
On the other hand, we understand that necessary investment must be implemented. As already announced,
we will build 8 next-generation pure car carriers partly as a means of furthering our environment preservation efforts.
Other than those, we also view LNG business with higher profitability.
Although we must reinforce our financial standing first, investments for the future are also essential,
and from what we earn here we will use for return to shareholders, for which your kind understanding is requested.