Japanese ship lines continue to post heavy losses, particularly in the once- lucrative North American liner route, and it appears increasingly likely that the Big Six group of Japanese carriers will be reorganized.
Market conditions are severe and the survival game is getting more serious, said Keizo Muranaka, senior managing director of Mitsui O.S.K. Lines.Present rate levels are simply too low for any liner company to make a profit, says Tsunenari Tokugawa, an executive with Nippon Yusen Kaisha (NYK) Line.
None of nation's big six liner operators is making money from shipping operations. Between April and September, the first half of the current business year, NYK was the only shipping company to earn a profit. That profit, 9.2 billion yen, was due to the company's strong non-shipping operations.
The other five companies - Mitsui O.S.K., K Line, Japan Line, Showa Line and Yamashita Shinnahon Steamship Co. - lost a total of 30.4 billion yen between April and September. During the previous 12 months, the five companies lost 61.3 billion yen. NYK, meanwhile, had an operating profit of 14 billion yen - again, because of non-shipping businesses.
The lines' problems include the appreciation of the yen against the
dollar, the shift of manufacturing from Japan to cheaper Far East nations, and strong competition from lines that have developed good intermodal connections in the United States. U.S. carriers have been particularly competitive in establishing intermodal rail trains for trans-Pacific freight.
All of the lines have suffered a sharp fall in revenues - by 26 percent last year and another 28 percent through the first six months of the current business term. Combined revenues of the six lines totaled 1.4 trillion yen in the fiscal year ending last March, down from more than 1.9 trillion yen the year before.
Most see little improvement, for the next few months at least. There is no economic scenario in sight that suggests the performance of this industry will significantly improve, says Thomas Zengage, research director for IBI Inc., a Tokyo-based industrial consulting firm.
The scene is especially bleak in the liner trades - especially the busiest one, to North America. The Transport Ministry reports that the six lines suffered a combined loss of 69.2 billion yen on that route in the last fiscal year, and further losses are forecast this year.
The Transport Ministry and several top lending institutions, including the Japan Development Bank, say there can be no long-term recovery until the six lines agree to restructure and consolidate their existing operations - especially in the North American routes.
The ministry, which 24 years ago led a similar restructuring that created the current six-line format, is being called on again to help form a consensus. It appears to have won the support of the principal lending banks, notably the Japan Development Bank and the Industrial Bank of Japan, both of which have been asked to restructure the long-term debt of the three weaker carriers - Japan Line, Yamashita-Shinnihon and Showa.
They really have two choices - to merge or to diversify, said IBI's Mr. Zengage.
Speculation within the industry is that something will break by the middle of this year. Among the more persistent rumors is that NYK will absorb the liner operations of financially ailing Showa Line. Neither company is commenting.
The industry also is working to find ways to further reduce costs, including manpower cuts and scrapping of older, less efficient vessels. Between October 1985 and October of last year, the nation's top lines cut their payrolls to about 9,700 seamen, or by more than 40 percent. Further reductions are planned.
NYK has disclosed it plans to cut its work force nearly in half by the early 1990s. At the same time, it hopes to raise its nonshipping income to 45 percent by the year 2005. The Japanese lines' problems start with the
weakening of the dollar and the appreciation of the yen. The Japanese currency has risen more than 85 percent against the dollar since September 1985. Most shipping revenues are collected in dollars. So when the dollar revenue is converted to yen, the lines can lose as much as 40 percent of their income.
The effects have been devastating - particularly in the trans-Pacific eastbound trade, which accounts for 10 percent to 12 percent of the lines'
Competition has prevented the Japanese lines from raising freight rates enough to make up for their losses. Rates presently stand at 1986 levels.
The strong yen has hurt the carriers further by encouraging the shift of Japanese manufacturing to lower-cost countries such as Taiwan, South Korea and Hong Kong.