Nippon Yusen, K-Line Slash Forecasts as Trade Slumps

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31 Jan 2009

Nippon Yusen K.K., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. Japan’s three largest shipping lines, slashed full-year profit forecasts as slower growth in China cut demand for commodity transportation. Nippon Yusen fell the most since 1974. Nippon Yusen expects net income of 73 billion yen ($816 million) in the year ending March 31, 48 percent less than a previous forecast. Kawasaki Kisen cut its forecast 58 percent to 30 billion yen. Mitsui O.S.K. expects net income of 130 billion yen, 33 percent less than earlier forecast.
Demand for transporting iron-ore, coal and other commodities has tumbled, pushing the Baltic dry index, a measure of commodity-shipping rates, to a record decline last quarter. Asian container shipments to the U.S. are also declining and Japan’s shipping lines have cut their services.
“Next fiscal year’s profit is going to be worse,” said Yoshihisa Miyamoto, an analyst in Tokyo at Okasan Securities Co. “Even a small drop in the level of bulk commodity transport has a big impact on profits.”
Nippon Yusen, which also cut its full-year dividend forecast to 15 yen from 26 yen, plunged 16 percent to 430 yen at the 3 p.m. close of Tokyo Stock Exchange trading. Mitsui O.S.K. dropped 12 percent and Kawasaki Kisen, also known as K-Line, slid 13 percent.
China’s Economy
China’s economy expanded at the slowest pace in seven years last quarter amid factory closures. The world’s biggest steelmaker and buyer of iron ore grew at 6.8 percent in the fourth quarter, compared with a 9 percent gain in the previous three months. Also, China’s exports fell the most last month since 1999.
The Baltic index, a measure of commodity-shipping rates, tumbled 89 percent last quarter, its biggest drop on record.
The index averaged 1,169 points in the three months ended Dec. 31, compared with 10,318 points in the same three-month period a year earlier.
In the third quarter, Nippon Yusen’s net income dropped 50 percent to 19 billion yen. Mitsui O.S.K.’s profit plummeted 77 percent to 13.6 billion yen and Kawasaki Kisen, also known as K- Line, had a loss of 10.5 billion yen.
Separately, Kawasaki Kisen’s senior managing executive officer Tetsuo Shiota said the company will reduce its fleet expansion plan by 12 percent to about 500 ships by the end of March 2010. K-Line plans to take delivery of about 40 new ships next fiscal year to help it save 30 billion yen in costs, Shiota said.
The move follows expansion slowdowns announced by Nippon Yusen and Mitsui O.S.K earlier this month. Nippon Yusen is cutting its expansion by up to 100 vessels, according to Japan’s Nikkei newspaper. Mitsui O.S.K. plans to reduce its expansion by 50 ships.

Source: Bloomberg