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Sunday, September 25, 2016

Lack of Committed Charters Cause of MOL's Losses

January 7, 2013

In his New Year message, Mitsui O.S.K. Lines President Muto predicts loss in 2013 of same magnitude as last year, suggests new business model.

Excerpts from Mr. Muto's message follow:

"The marine transport industry has faced a challenging external environment mainly due to economic slowdowns in Europe, the U.S. and China, the yen's appreciation, and high bunker fuel prices. This has certainly been a factor behind MOL's losses. However, we must also take a hard look at reality and ask ourselves why MOL has fallen into this predicament.

The biggest reason is that MOL's free tonnages, namely tonnages with no committed contracts, have been operating at a large loss as a result of an unprecedented decline in dry bulker and tanker freight rates. While dry bulkers' deliveries in 2012 surpassed the record-high level of the previous year, the seaborne trade volume of resources and energy grew at a slower pace due to slowing Chinese economic growth. This has widened the supply-demand gap for vessels, causing freight rates to remain at historically low levels over an extended period. Consequently, MOL's free tonnages, which had generated large earnings when freight rates were buoyant, recorded losses that have significantly eroded the stable earnings accumulated through steady sales efforts in the past. As a result, the company as a whole fell into the red.

Starting from around the second half of 2013, we are projecting firm seaborne trade volume centered on emerging countries, while the supply of new vessels is expected to decline. We believe that freight rates will start to recover in step with an improving supply-demand gap for vessels. However, Chinese shipyards and other players have significantly expanded their scale of operation in recent years. If they continue to build new vessels at a rapid pace going forward to keep running their business, this shipbuilding could weigh heavily on the recovery of freight rates. To ensure that we restore profitability based on a stressed scenario where the business environment remains extremely challenging in 2013, we must shift to a business structure that is not reliant on a recovery in freight rates.

Future Measures


First we must reduce the market exposure of free tonnages, which is the driving factor behind our losses. Generally speaking, market downturns are a time for procuring competitive free tonnages. However, to reduce the risk of a decline in earnings due to market swings at the present time, we must work to reduce our market exposure by winning as much cargo as possible, while gauging the right timing.

Furthermore, we must enhance MOL's resilience to market fluctuations by reducing its exposure to the risk of changes in market conditions. To this end, we must do everything we can to reduce the number of free tonnages in cooperation with our business partners. Measures will include the scrapping, sale, and redelivery of vessels as well as delaying delivery of new vessels."

Mr. Muto concluded in some detail, with an explanation of these, and other measures to be taken by the company in order to return it to profitability.
 

 



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