【K Line’s Own Businesses】
Q-1: You indicated that the number of vehicles transported in Car Carrier Business in fiscal 2025 is expected to remain nearly flat compared to last year, including new shipments. How much of a decrease do you expect to see in the number of U.S.-destined vehicles alone? Also, please tell us what percentage of the total will be exported to the United States.
A-1: At this time, we estimate that approximately 3.7 to 3.8 million units will enter the United States via ocean voyage, excluding shipments from Canada and Mexico and we expect that around 30% of that volume will decline over the course of the year. This will be a decrease of approximately 1.0 to 1.1 million vehicles, which we believe is roughly consistent with the decrease in annual volume for fiscal 2025 that is being reported in newspapers and the media. Although no figures have been shown, as to the portion we transport, we expect to see a certain decrease in the volume of vehicles shipped to the United States.
Q-2-1: It is my understanding that the number of vehicles transported to North America by “K” Line’s Car Carrier Business in fiscal 2025 will decrease, but the overall volume will remain flat because new contracts are expected to cover the decrease. On the other hand, your ordinary income forecast is about 20% to 30% lower than that in fiscal 2024. Could you explain this situation, please?
A-2-1: Regarding the quantity for Car Carrier Business and the degree of profit impact, please understand that the majority of the tariff impact for “K” Line’s own businesses described on page 8 of the briefing materials is attributable to Car Carrier Business. On the other hand, while there has been some last-minute demand, the Asia-to-North America transport market has been steadily trending upward since last year. As a result, we have been receiving long-term contracts from customers, not only for shipment to the U.S. but to other regions as well. Accordingly, we have reduced the full-year forecast for the number of vehicles transported in fiscal 2025 by about 46,000 units. As explained earlier, the number of vehicles bound for the United States is expected to decrease to a certain extent.
Our financial outlook has been prepared with consideration for an overall softening of the market, including a decline in shipments to the U.S.
Q-2-2: Is the expected decrease in the number of vehicles destined for the United States the main reason for the forecasted decrease in profit for Car Carrier Business?
A-2-2: For the most significant factor, please refer to page 8 of the materials, specifically the part stating “②FY25 before considering tariff impacts.” Regarding the exchange rate forecast, the roughly 12-yen appreciation of the yen will have an impact, with Car Carrier Business accounting for a significant portion of “K” Line’s own businesses. In addition to the significant impact of exchange rates, the decline in the number of vehicles transported I mentioned earlier—along with a slight downturn in market conditions—are factors we have taken into account. I hope this helps explain the expected drop in earnings for Car Carrier Business.
Q-3: Regarding the Suez Canal, there were news reports today that attacks on U.S. vessels in the Red Sea are expected to cease. However, attacks on Israel-affiliated vessels are likely to continue, so I think the situation has effectively returned to what it was in late January of this year. If that is the case, does it mean we are returning to the original situation in which operations are not possible there due to the risks involved? Could you confirm whether the assumptions I have made are correct?
A-3: I think there are still many points that need to be confirmed regarding the Suez Canal route. Even if U.S.-related vessels are no longer targeted, when it comes to vessels affiliated with Israel, there are various factors to consider—such as Israeli ownership, services bound for Israel, or cargo destined for Israel. Moreover, in the process of attempting to attack such vessels, there is also a risk that unrelated ships may be mistakenly targeted. The safety of our vessels, crews, and cargo must come first. Considering the insurance situation, there are still many aspects that need to be confirmed, so at this point I do not think it will be easy to resume transits through the Suez Canal.
【Capital policy 】
Q-1：Regarding your cash flow plan approach, you have not revised the operating cash flow for the Medium-term Management Plan period this time. Is this based on the assumption of an ordinary income plan of 160.0 billion yen in fiscal 2026, the final year of the Medium-term Management Plan?
A-1: There are various factors that could affect how we view fiscal 2026, and we are assuming a different figure from 160.0 billion yen. Still, I can confirm that the operating cash flow of 1.5 trillion yen is achievable based on this assumption. That said, I think it could come in higher or lower than that level because there are still many aspects of next fiscal year's performance that are unclear, so I think we need to take this into consideration to some extent. Even taking this point into account, including the reduction in investment cash flow, we determined that the 50.0 billion yen increase in shareholder returns could be reliably secured. Accordingly, we proactively allocated it to shareholder returns in line with our shareholder return policy.
Q-2: This time, you increased shareholder returns by 50.0 billion yen. However, since investment cash flow has been reduced, it appears there is roughly 80.0 billion yen in net unallocated cash. Is this because you intend to keep it as a buffer in case operating cash flow or the ordinary income target of 160.0 billion yen for next fiscal year falls short? Or is there another rationale behind it?
A-2: As you pointed out, the 80.0 billion yen in management allocation could be used to absorb any shortfall in operating cash flow, and it may also be used for additional shareholder return. Regarding the investment delays I mentioned earlier, if the postponement is not far into the future but only to around fiscal 2027, we may need to set aside a certain amount in preparation. We will make decisions going forward based on these considerations.
Q-3: Regarding investment cash flow, you mentioned a decrease of about 130.0 billion yen from the previous forecast, due to both a shift in the timing of investments and cash-in flow from asset sales. If possible, could you provide a breakdown of this amount? Also, I am assuming that many of the asset sales involve vessels, so please share any details if you can.
A-3: Of the roughly 130.0 billion yen decrease compared to the previous plan, about 30.0 billion yen is expected to come from increased cash inflows from asset sales. The remaining portion mainly reflects timing shifts in cash outflows related to LNG projects beyond the current Medium-term Management Plan period, as well as delays in the delivery of carriers for coal and iron ore. Overall, please understand that approximately 100.0 billion yen relates to vessel-related items, along with around 30.0 billion yen in inflows from asset sales.
While vessel disposals make up a large portion of the asset sales, the total also includes a portion of the cash inflows from the previously announced transfer of “K” Line Logistics shares in April.
【Containership Business】
Q-1: Regarding Containership Business within the overall profit plan, could you provide any quantitative supplementary data on cargo volume and freight rates underlying the 53.5 billion yen figure before factoring in tariff impacts, and the 37.0 billion yen figure after taking tariffs into account?
A-1: The figure in the middle of page 8, before considering tariff impacts, is based on ONE’s disclosed after-tax profit estimate of 1.1 billion dollars—one of the two figures they have presented. In other words, it reflects an estimate based on both the short-term and long-term freight markets as of March, when that 1.1 billion dollar forecast was made, using fiscal 2024 results as a reference point. In contrast, our figure after considering tariff impacts also starts with the 2024 actual results and incorporates the 1.1 billion dollar estimate, but further reflects more recent market conditions. While there was a temporary uptick in short-term freight rates due to a surge in demand following the U.S. tariff announcement, we do not expect this trend to continue indefinitely and anticipate the market will stabilize at some point.
As for cargo volume, the pre-tariff impact figure shown in the middle of the page assumes roughly the same cargo volume as last year. The post-tariff figure, on the other hand, incorporates a certain decline in cargo volume, mainly on U.S.-bound routes.
Q-2: Have there been any recent changes in containership trade patterns? I have heard that recently, short-term freight rates from Vietnam to North America are higher than those from China to North America. I would like to confirm whether production is being rerouted or shifted.
A-2: As for changes in trade patterns, it is true that bookings for transport originating in China are currently at a standstill. As an alternative, there has been a temporary increase in bookings from Vietnam and other loading ports, as you pointed out. However, it is not possible to quickly shift supply sources from China to other countries or to overhaul the production system in the short term. What is currently happening in the United States is that inventories in the retail market are getting tighter and tighter each day. In response to this, I think it is necessary to first determine how the situation in the United States will change over the next one or two months. Based on that, we will be able to determine whether the trade pattern is actually changing.
Q-3: I would like to compare the current SCFI spot freight rates with “K” Line's forecast assumptions for fiscal 2025. While we would naturally expect transport volumes to drop, spot freight rates have not actually fallen, but have stabilized instead. How does this differ from your assumptions for fiscal 2025? Also, there are reports that annual contract freight rates have been decided. How have you reflected them in the forecast for fiscal 2025?
A-3: I will explain the freight rate levels for both the long and short terms.
First, for long-term freight rates, contracts are being concluded at slightly higher rates this year compared to last fiscal year, particularly for Asia-North America and Asia-Europe routes. On the other hand, especially for the North America routes, some customers, anticipating uncertainty in the future, are reducing the size of minimum quantity commitment in their contracts. This has been a noticeable trend.
Next, short-term freight rates have fluctuated slightly before and after the impact of the tariff announcement. Before the impact of the tariff announcement, short-term freight rates had fallen considerably after the Lunar New Year, and in fact had fallen to the level of the beginning of last year. After the tariffs were announced, there was a rush of demand, which we view as temporary, but freight rates are currently trending slightly higher. We are closely monitoring the situation to see how long this will last.
