Container ship lines have yet to prove they can manage vessel capacity well enough to ensure long-term profitability, the chief executive of Japan’s NYK Line said.
In a speech marking NYK’s 125th anniversary, CEO Yasumi Kudo said container shipping “has pulled off an unexpectedly swift recovery,” but “it would be a mistake to claim that the container ship business has become a fully sustainable business model.”
He said carriers’ return to profitability was due to capacity cutbacks that enabled carriers to charge profitable rates. As demand plunged last year and global carriers lost a total of $15 billion, they laid up ships and slowed vessel speeds to conserve fuel and soak up capacity.
NYK is No. 10 on the JOC list of the Top 15 Container Fleet Operators.
NYK reduced its container ship capacity 4 percent in the first eight months of this year, Alphaliner reported. Kudo questioned whether other carriers will keep their capacity in line with demand when volume drops.
“As usual, some container ship operators have been quick to explore the possibility of expanding shipping capacity at a pace faster than the recovery of cargo traffic,” he said. “Meanwhile, another cause for concern is an unexpectedly slow recovery in European or U.S. cargo traffic.
“Whether or not the container ship business can be transformed into a sustainable business model will depend on container ship operators voluntarily choosing to lay up ships according to shipping capacity, during the next slack season,” he said. “The problem … is that even if all operators resort to ship lay up during the next slack season, it may not be truly possible to expect such a measure on a permanent basis.”
Kudo said strong demand from emerging economies such as China and India enabled NYK’s bulk shipping to quickly regain profitability after the financial shocks of 2008. He said the challenge is how to deal with rising capacity that is placing “heavy pressure” on bulk shipping markets.
He said NYK will continue to combine asset-based sea and air transportation, which he said are hard to differentiate from competitors, with “asset-light” activities such as non-vessel-operating common carriage, warehousing, customs clearance and trucking services.
Kudo said NYK’s air cargo business, Nippon Cargo Airlines, is “quickly recovering” from the recession and has undertaken a restructuring that will reduce the revenue it requires for profitability.
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