The outlook for Japanese shipping companies that carry the country's auto exports has become clouded in recent months.
Profit margins are shrinking. Overcapacity, already estimated to be in excess of 10 percent, is on the rise.Industry sources cite a combination of factors for the deteriorating business picture. Chief among them are the strong yen, at postwar highs for nearly half a year; quotas on automobile exports to the United States and Europe, Japan's major overseas markets; and sluggish demand in other key market areas.
Also, pressure from the U.S. Congress to give U.S. shipping companies a share of the car carriage business has prompted several Japanese auto companies to sign contracts this year giving U.S.-flag operators some of the business.
The market may also diminish as Japanese auto manufacturers build more and more assembly plants overseas in response to protectionist pressures.
Mark Brown, a senior consultant for Tokyo-based International Business Information Inc., claims that because of these factors Japanese shipping companies "will not be able to rely on profits accruing from car carrier operations - virtually their only profitable division - to provide additional earnings support this year."
Major carriers, as a result, have been forced to review their operations and in some instances alter their fleet composition and deployment. This year alone, Nippon Yusen Kaisha, Mitsui OSK and Kawasaki Kisen Kaisha - which together control up to 60 percent of the world's car carrier fleet - have withdrawn nearly 20 vessels from service.
Most of these vessels had been on timecharter and thus were sent back to their owners. A number of others, however, have been sent to the scrap yards, and more will be going in the months ahead. Some of these moves are part of ongoing fleet replacement plans - "K" Line, for instance, will put seven new and larger vessels into service by the second quarter of next year. Others will not be replaced.
Japanese shipping companies introduced their first pure car carriers in 1970. Today, some 16 years later, they are believed to timecharter or own outright an estimated 85 percent of the world fleet of almost 330 vessels. The
average loading capacity of these ships reportedly is 3,500 vehicles.
The business has always been regarded as a high-risk operation as it essentially involves a one-way movement of freight. Carriers also are at the mercy of seasonal fluctuations of cargo flows, which in recent years have been affected by export quotas.
Still, the operation has been extremely profitable. Though none of the companies will disclose just how profitable, industry sources suggest there have been cases when car carrier operations have accounted for as much as 70 percent of the ordinary or current profits of a number of the major operators.
This, however, is changing, and of the present range of problems facing carriers, the strong yen - which has risen about 50 percent against the dollar since September of last year - appears to be having the greatest impact on both revenue and profit levels.
Industry officials point out that most freight contracts involving the transport of automobiles are denominated in dollars. This means that companies are making a lot less money, and in the absence of contractual provisions or freight conference action to adjust for exchange rate fluctuations, carriers have seen their revenue base cut by about one-third in a little over a year.
Rates to the East Coast of the United States presently are estimated to
average $425 a vehicle; to the West Coast, shippers are said to be paying only $350, virtually the same levels as a year ago.
Lines also have voiced concern over the prospect of stagnating exports during the second half of this year and extending possibly through 1987. In 1985, built-up vehicle exports from Japan totaled a record 6.05 million units. Most forecasts, while predicting they will reach close to that level again in 1986, also caution there is likely to be a decline in export volumes between July and December, compared with the first six-month period.
The exchange rate again represents a major source of the problem. Equally significant, though, has been the introduction of export restraint measures by the Japanese government in a number of key markets in an effort to discourage protectionism overseas.
Takao Miyatake, a Nippon Yusen official, said, "Volume to the Middle East and Australia is very bad, and now restraints on exports to Europe are going to affect that trade. On balance, I would say the outlook is not very good."
According to industry statistics, export shipments to the Middle East were down 51.9 percent in the first six months of this year from 1985, and for the full year makers are looking at a total of only a little over 200,000 units, less than one-third the peak level which was reached in 1982.
Apart from the war-weary and capital-short Middle East, auto exports also have fallen sharply to Australia, down 34.2 percent between January and June to 143,287 units. And the European market, which experienced 35 percent growth in the half-year period ending this June, is now expected to see a substantial second-half decline as manufacturers must adjust to export limitations imposed by the International Trade and Industry Ministry in late July.
MITI, bowing to pressure from the 12-member European Communities, agreed to limit export growth for the year to only 10 percent. As a result of this action, analysts are predicting as much as a 20 percent second-half decline
from January-June export levels, which hit a record 885,311 units.
Surprisingly, exports to the United States and North America have held steady. The market, which a year ago claimed 3.5 million Japanese automobiles, nearly 60 percent of total built-up exports, has been strong in spite of a series of price hikes implemented by Japanese carmakers in the wake of the yen's sharp appreciation. On average, the makers have raised their prices between 10 percent and 13 percent.
The shipping companies have not been so fortunate, since for the most part they have not been able to raise their rates. The effect of the foreign exchange loss on their business, therefore, has been more severe.
Part of the reason for this situation is that rate-making conferences in the North American trades do not set rates for pure car carriers. As a result, almost all auto exports - with the exception of the few that move in containers - come under some form of shipper contract between the carriers and the manufacturers. And very few of these contracts, according to industry sources, include currency adjustment clauses.
This situation differs markedly from other major trade routes on which Japanese cars are transported. In almost all cases, conference tariffs include provisions for sharp fluctuations in exchange rates. The amount of adjustment, however, is said to be only about half the amount needed, or approximately 20 percent.
An added concern for the lines is the planned introduction of a number of new, primarily U.S.-flag auto carriers on the Japan-U.S. route in 1987. A total of four vessels are scheduled to enter service starting in the second quarter of the year. Two will be owned and operated by Central Gulf Lines of New Orleans and one each by Overseas Shipping Group and Marine Transport Lines, respectively based in New York City and Secaucus, N.J.
The ships, with capacities between 4,000 and 5,000 units, will be chartered for periods extending up to three years by three of Japan's leading auto manufacturers: Tokyo Motor Corporation, with Central Gulf Lines and OSG; Nissan Motor Co., with Marine Transport Lines; and Honda Motor Co., also with Central Gulf Lines.
Depending on how the ships are deployed, they are expected to handle some 5 percent of the U.S. exports of the three makers. Their operations, however, are not restricted to the Japan-U.S. route.
A fifth vessel, to be owned by Act Maritime Co., a joint venture shipping company between Honda and Mitsui OSK, is scheduled to begin service this month. This also will be the fifth vessel in the fleet of Act, which is devoted exclusively to the transport of Honda cars exported to North America.
Honda is not the only car manufacturer directly involved in the shipment of its exports. Nissan, through a wholly owned subsidiary, Nissan Motor Car Carrier, has 15 vessels under its direct control, including six owned outright. And Toyota, through Toyo Fuji Shipping, an affiliated company, operates six small car carriers to points throughout Asia. In addition, Toyo Fuji owns two 4,500-unit deep-sea vessels.
It is not yet clear just what effect the new U.S. ships will have on the market, as the present deployment plans of most of the companies would suggest the vessels actually are going to be integrated into the worldwide service networks of the major lines or manufacturer-affiliated operators.
Mitsui OSK official Kenji Yamashita believes their presence will have an impact on the trade. He said, "They will cause some difficulties as the total pie for Japanese carriers becomes less. And I believe some of the companies most certainly will be affected."