【Containership】
Q1：Volume for the Asia-North America routes declined about 6% year on year in the third quarter. This seems worse than given the overall market condition. Were there any special factors behind this?
A1：Volume on Asia-North America routes declined year on year. Although there was no major change in fleet allocation compared with the previous fiscal year, we did experience growth in volume in the previous fiscal year and a utilization rate of 97% due in part to the effect of the failure of a Korean shipping company. By comparison, the utilization rate declined to 89% in the third quarter of this fiscal year. According to data announced by Alphaliner, the cargo volume on Asia-North America routes in the April-September first half of this year increased by a little more than 7% year on year, but only by about 2% in the October-December third quarter. Although there is year-on-year growth, the growth rate in October-December is substantially lower. As a result, we posted lower year-on-year volume in the third quarter.
Q2：You stated that the full-year expenses related to integration of Containership Bussiness are forecast at 5.0 billion yen. Does this mean that you have raised the expense forecast amount by 1.4 billion yen on top of the 3.6 billion yen forecast in the second quarter and 5.0 billion yen is the most recent forecast?
A2：That is correct.
Q3：You have increased the forecast expenses for integration of Containership Business by 1.4 billion yen. Is there a possibility that the amount will increase further in the future?
A3：ONE carefully estimates expected future expenses on a regular basis. At the current time, we do not expect there to be a major change in the forecast expenses we have announced.
Q4：You stated that containership freight rate market conditions have been sluggish this fiscal year due in part to the transition period for integrations among shipping companies. When ONE begins shipping services from April, how will that impact market conditions? Additionally, how do you expect containership freight rate market conditions to trend overall during the next fiscal year from April?
A4：From April, our Containership Business will be operating as ONE. While it may not be appropriate for KLINE to comment on market conditions at this time, honestly speaking, we cannot be satisfied with this year’s freight rate market conditions. For the fiscal year starting April, we look forward to improved market conditions driven by a tighter supply-demand balance as shipping companies, including ONE, progress with their integrations.
Q5：You forecast an increase in the containership freight index from the third quarter to the fourth. Given the instability in the supply-demand balance, what are the reasons for the increase in the fourth quarter?
A5：Our fourth-quarter forecast for the Asia-North America freight index is 74 compared with 73 in the third quarter. For Asia-Europe, our fourth-quarter forecast is 52 compared with 50 in the third quarter. So I interpret your question as meaning, is it reasonable to expect this one point rise in Asia-North America and two point rise in Asia-Europe. Entering January, freight rates have rebounded for both Asia-North America and Asia-Europe routes. The rate increase for Asia-North America East Coast has been particularly sharp. We forecast freight rates to remain robust until the end of the Chinese New Year from mid-February, reflecting typical high-season demand at this time of the year. After the Chinese New Year, we expect demand to slacken and freight rates to decline as a result.
Q6：You stated that freight rates weakened in the third quarter because there was a sluggish increase in demand while supply continued to rise. Please explain your forecast for overall market condition trends in the fourth quarter.
A6：Regarding supply-demand balance, we have an accurate grasp of cargo movements and space availability until December based on data from Alphaliner. From January onward, unfortunately we do not have specific figures on month-on-month changes in cargo movement. Having said that, space availability on both Asia-North America and Asia-Europe routes has tightened since the start of January. This trend is expected to continue until at least the end of the Chinese New Year in mid-February.
Q7：Please explain ONE’s integration expenses through the third quarter.
A7：We have been told that ONE’s integration expenses are currently forecast at 3.38 million dollars. A large proportion of this, approximately 2.6 million dollars, will be expended in the fourth quarter. The remaining part was expended in the second and third quarters. Most of the expenses will be concentrated in the fourth quarter.
【Car Carrier】
Q1：Is there any change in the financial forecast for Car Carrier Business announced at the end of the second quarter?
Q1：There is no major change.
【Offshore Energy E&P Support】
Q1：You have revised downward your forecast for Offshore Energy E&P Support Business and the offshore support vessel business alone appears to be unprofitable. Please explain your thoughts on the future viability of this business.
A1：Offshore Energy E&P Support segment comprises the Offshore Support Vessel Business, Drill Ships, FPSO, and the Heavy Lifter Business, which has been sold. Unfortunately, Offshore Support Vessel Business had a foreign exchange loss of more than one billion yen due to the weakness of the Norwegian krone at the end of the third quarter, and overall the business was unprofitable. Excluding the foreign exchange impact, however, the loss was not large. While there is some chance left for restructuring, there are signs that major oil companies and Scandinavian oil field developers are speeding up project development now that North Sea Brent crude prices have returned to the 70 dollar level and the WTI is back to the mid-60 dollar range. We will carefully monitor these trends as we plan future business strategy.
Q2：Please explain whether there is further chance for cost-savings in the offshore support vessel business.
A2：Energy resource prices and crude oil prices have been in a three-year slump. This has caused the offshore support vessel market conditions to remain in a similar slump. Under these conditions, we have made strides on reducing costs, revamping maintenance and crew allocations, and making other efforts to improve the business’s bottom-line. Regarding chance for further cost reductions in the future, while there may not be opportunities for major improvements on top of what we have already achieved, we do expect some improvement in profitability in line with the changes in the crude oil price environment.
