The red tide is coming in. Container ship lines are starting to report their results for 2011, and the numbers aren’t pretty.
South Korea’s Hanjin Shipping led off last week by announcing $487 million in container shipping losses during 2011. Bulk shipping profits reduced the company’s overall loss for the year to $437 million.
Then came Japanese carriers NYK, MOL and “K” Line with combined losses of more than $500 million on container operations in the October-December quarter. All warned groupwide losses for their current fiscal years, which end March 31, would be larger than previously forecast.
Container shipping profitability has been on a roller coaster in the last three years. After losing $15 billion to $20 billion in 2009, carriers recouped most of that in 2010 as the market recovered. Now they are losing ground again. Drewry Shipping Consultants estimated major container ship lines lost a total of $5.2 billion last year.
Hanjin’s container shipping loss last year followed a $532 million operating profit for the division in 2010 and a $652 million operating loss on containers in 2009. Volume rose 12.4 percent to 4.17 million 20-foot equivalent units last year, but revenue fell 2.6 percent to $6.75 billion. Hanjin’s group-wide net loss was $729 million, compared with a $257 million profit in 2010.
Hanjin said it expects overcapacity created by deliveries of large new container ships to continue this year, but the company said it “believes the market will gradually grow stable due to carriers’ efforts to improve profitability.”
In separate quarterly reports, Japan’s three largest ocean carriers cited sluggish demand, low rates, a strengthening yen and high bunker fuel prices. They said they are suffering from soft bulk and tanker markets in addition to overcapacity in container shipping.
NYK President Yasumi Kudo said NYK’s terminal and harbor transport, cruises and real estate units are on track to meet previous forecasts, but liner, bulk and air transport divisions face difficulties.
“The severe business environment is expected to continue amid protracted European financial and fiscal issues, the delay in the U.S. economic recovery, continued yen appreciation, and concerns that Western-led economic sanctions on Iran will lead to higher bunker fuel prices,” Kudo said.
NYK estimates its groupwide profits fall by more than $11 million per year for each one-yen appreciation in the Japanese currency against the dollar and by about $2 million for each $1-a-ton increase in bunker prices.
The company said the average value of the yen against the dollar in the October-December quarter rose by 8.35 yen from a year earlier. Average bunker fuel costs during the first nine months of NYK’s fiscal 2011 were $655 per ton, up from $471 in the first nine months of 2010.
NYK’s liner operations lost $179 million in the company’s October-December fiscal third quarter, reversing a $96 million profit a year earlier. Liner revenue during the quarter dropped 9.6 percent to $1.3 billion. NYK said it expects group-wide losses for the fiscal year to total about $393 million.
MOL’s container losses for the October-December quarter totaled $155 million, compared with a $98 million profit a year earlier. Revenue fell 9.7 percent to $1.7 billion. “Stagnation of ocean shipping markets has become prolonged while low-growth conditions persist in developed countries’ economies,” the company said.
“K” Line posted a $173 million operating loss on container shipping during the quarter, compared with a $69 million profit a year earlier. Container shipping revenue fell 11 percent to $1.2 billion. “K” Line expects a net loss of about $690 million for the fiscal year.
“The container ship business will remain uncertain for the time being because of the sluggish global economy,” the company said in announcing its results. “Freight rates, however, have bottomed out since the beginning of this year. Further recovery is expected.”