Japan’s NYK Group reported improved revenue and a return to profitability for the first quarter of the fiscal year, which it attributed largely to more sustainable container shipping rates between Asia and Europe, as well as recovery in automobile shipments in the car carrier division following last year’s earthquake in Japan and flooding in Thailand. Logistics for automotive parts also appears to have performed reasonably well for the group, even in recession-hit Europe.
However, the financial crisis in Europe as well as slower growth in North America and Asia, along with a strong yen, have prompted the shipping giant to lower slightly its revenue and net profit outlooks for the fiscal year 2012-2013. It has also decreased its planned investment in its container and car carrier fleets under its medium-term management plan, “More Than Shipping 2013,” which aims to diversify further into value-added services and higher margin activities relative to shipping, including logistics and freight forwarding.
Revenue across the group rose around 6.6% in the April-June period to ¥477.5 billion ($6.1 billion) compared with the same period last year, while recurring profit improved from a ¥10.1 billion loss to ¥4.8 billion gain. Because of a loss on valuation of investment securities, net income was ¥1.3 billion in the red, although this improved from a ¥7.1 billion loss last year.
The company saw a negative impact from a strong yen, which averaged ¥80.77 to the US dollar during the quarter, compared to ¥82.04 in the period last year. Bunker oil prices were also higher, averaging $716.78 per metric tonne compared to $625 last year.
“The main reason behind our return to profitability was the strong recovery in freight rates in the liner trade segment [container shipping] and the recovery in automobile shipments in the car carrier division compared to last year, when shipments were adversely impacted by the natural disasters in and outside Japan,” said NYK’s president Yasumi Kudo, in a statement.
NYK’s container shipping segment saw revenue up 6.3% to ¥115 billion. It posted a ¥3.3 billion loss in recurring profit, although this was a ¥5.2 billion improvement from last year. Besides improving supply and demand on the European routes, NYK further credited the improvement in container shipping to robust cargo demand in Asia, slow steaming vessels and cost cutting.
NYK said that it was aiming to return the container division to profitability over the fiscal year, including making further cost reductions as well as applying a summer surcharge. However, recent drops in the freight rates between Europe and Asia could make it difficult to keep rates at profitable levels.
Recovering car exports drive profits
Bulk shipping, which includes car carriers, registered ¥5.6 billion in recurring profit following a ¥5.4 billion loss last year. Although NYK does not provide specific revenues for car carriers, it pointed to oversupply situations for the other two segments of bulk shipping, dry bulk and tanker, which suggests a large share of the profit has been driven by NYK’s 121-vessel strong car carrier fleet. The company also pointed to slow steaming of car carrier vessels and “other measures to lower operating costs” with the improved results.
NYK suggested that the car carrier division would remain the strongest segment in bulk shipping for the rest of the year. “We forecast stable automobile shipments in the car carrier division, but on the dry bulk carrier and tanker divisions, weakened market[s will] still continue for a while due to the large supply-demand imbalance,” said Kudo.
Logistics business misses targets, but automotive strong
Air cargo revenue dropped 10% in the quarter on slumping air freight rates to and from Japan, while recurring profit fell to ¥700m loss after a ¥1.9 billion gain last year. The logistics business, which includes contract logistics, warehousing, air and sea freight forwarding, saw revenue fall 6.9% to ¥87.8 billion, mainly because of lower demand for consumables in the US and Europe, although it maintained a recurring profit of ¥1.2 billion, compared to ¥900m in last year’s first quarter.
NYK acknowledged that the logistics business, much of which has been restructured globally into Yusen Logistics, failed to meet its targets for the quarter, a result that could be considered disappointing given the ambitious objectives set out earlier this summer by Kudo, who told Bloomberg that NYK would more than double Yusen’s annual revenue in the next seven years to ¥800 billion, as part of the “More than Shipping 2013” plan (read more here).
But the for the rest of this year, at least, the company expects weak air cargo to continue and it has dampened expectations for the logistics segment.
“We expect the severe environment to continue due to the slumping air forwarding handling volumes and declining seaborne forwarding profit margins,” said Kudo.
But while the short-term results from logistics might be lacklustre, there are signs to suggest that automotive is outperforming other segments across NYK’s global logistics business and at Yusen. Kudo’s comments earlier this month pointed specifically to growth in freight forwarding and logistics for automotive parts, notably for sourcing in Asia in markets such as Thailand as Japanese OEMs reduce their exposure to a strong Japanese yen.
“Demand for cars in Asia is booming,” Kudo told Bloomberg. “Intra- Asia trade is by far the biggest growth market now.”
Even in markets considerably weaker than Asia, such as the struggling European region, automotive logistics has been strong for NYK and Yusen. Michael Storey, business development director for Yusen Logistics Europe, told Automotive Logistics during a recent interview that the company has enjoyed “good growth” in automotive in Europe over the past 18 months. As well as resilient production among key customers in the UK, notably Nissan, Toyota and Bentley, Storey pointed to growing business with Volkswagen Group companies, including Audi and Skoda, in central and east Europe.
That is part of the reason why Yusen Logistics Europe, despite the growing difficulties in the region, has targeted growth of around 25-30% in automotive over the next three years, revealed Storey.
Lowered revenue and investment expected
While both inbound and outbound automotive segments are strong, NYK has lowered its overall revenue and income forecasts for the group. The revenue forecast for the fiscal year 2012 was reduced from ¥2,000 billion to ¥1,960 billion, while the forecast for recurring profit was kept stable at ¥40 billion. The forecast for net income was lowered ¥3 billion to ¥20 billion.
The NYK Group recorded a loss of ¥33.2 billion in recurring profit in the fiscal year 2011, and a net income loss of ¥78.5 billion.
Importantly, the group has also revised its investment and fleet portfolio intentions as part of the “More than Shipping 2013” plan from the initial targets set in March 2011. NYK now plans to reduce its container shipping fleet from 100 to 95 in the financial year 2013, compared to the original intention to have 110 vessels. The company will make no additional investments in its container fleet in the period to 2016 beyond its current investment plan of ¥30 billion, resulting in a fleet of 90 vessels by that year, compared to original plans for 110. The proportion of owned or long-chartered vessels will also decrease from 84 (out of 100) in 2011, to 63 (out of 90) by 2016.
In a sign of some expected stability in the car carrier market, NYK has left its fleet intentions in this segment unchanged: the fleet will grow from 121 vessels in 2011 to 130 in 2016. The group has significantly lowered its investment plan in the period for carriers, however, to ¥105 billion compared to original plans for ¥190 billion.
Planned investment in the logistics business until 2016 has decreased by ¥1 billion to ¥30 billion.