Black Ink for Box Lines

Black Ink for Box Lines

Container ship lines enter the slack winter season hoping to stick with the formula that’s begun to reverse last year’s $15 billion in losses.

Japanese carriers NYK, MOL and “K” Line and China’s Cosco and China Shipping are the latest in a string of container lines to post profits for the July-September quarter after losses a year earlier. The parent companies of APL and Orient Overseas Container Line previously reported similar turnarounds.

With shipper demand recovering to near pre-recession levels, carriers have boosted rates by slow-steaming and other capacity-restricting measures, and by collecting surcharges that have helped offset higher fuel costs. Container shortages also have helped shore up rates.

 Profits, however, may be more difficult for carriers to achieve in the months ahead. NYK, MOL and “K” Line raised their forecasts for their April-May fiscal years, but only because of better-than-expected results from their most recent quarter. With oceanborne shipments of holiday imports past their peak, the carriers expect rates to soften through the slack winter season.

The carriers indicated they don’t expect a sharp drop, however. “While outbound cargo traffic on the east-west routes is expected to show a downward trend, timely adjustments in space supply are likely to keep freight rate declines in the narrow range,” MOL said.

All of the Japanese carriers said improved container and car-carrier operations offset weaker results from their bulk and tanker units. The carriers said their increased profit forecasts assume relatively stable fuel prices and yen-dollar exchange rates. Japanese carriers benefit from a weaker yen because most of their revenue is in dollars while many of their expenses are in yen.

Vessel capacity that has jumped this year and is expected to increase again in 2011 is another concern. Paris-based research analyst AXS-Alphaliner said it expects to see the second-largest annual injection of capacity in history this year, with 278 vessels totaling 1.42 million tons delivered between January and December. Another 1.4 million TEUs of capacity is scheduled for delivery next year.

NYK Chief Executive Yasumi Kudo warned in a recent speech that container lines’ recovery could be short-lived if carriers fail to match vessel capacity with demand. He said the industry had not demonstrated its profitability was sustainable.

NYK reported recurring second quarter profit of $182.5 million, converted from yen, from liner operations, compared with a loss of $189 million a year earlier, as revenue soared 54 percent to $1.47 billion. NYK reported groupwide net income for the quarter of $246 million, compared with an $11 million loss in last year’s second quarter, as revenue rose 33 percent to $5.8 billion. NYK ranks 10th on the JOC’s list of Top 40 Container Lines, handling 474,402 TEUs of combined U.S. imports and exports in the first half of this year, up from 434,151 TEUs a year earlier.

MOL, ranked 14th on the JOC Top 40 list with 408,775 TEUs in first half U.S. volume (up 9 percent year-over-year), recorded ordinary income of $200 million from liner shipping revenue, compared with a loss of $184.7 million a year earlier, as container revenue increased 45 percent to $1.875 billion. MOL’s group net income totaled $554 million, reversing a $105 million loss a year earlier as group revenue jumped 28.5 percent to $9.6 billion.

“K” Line’s operating income from container shipping totaled $193 million, compared with a loss of $285 million a year earlier, as revenue rose 36 percent to $1.5 billion. “K” Line is 13th on the JOC Top 40 list, with combined first half U.S. volume rising to 479,829 TEUs from 430,042 TEUs. “K” Line’s group net income totaled $121 million on revenue of $3.1 billion.

China Cosco Holdings, parent of Cosco Container Lines, No. 7 on the JOC Top 40 list with 523,504 TEUs in the first half, posted groupwide net profit of $314 million, compared with a loss of $106 million a year earlier, as a 16.1 percent increase in container volume and an 84.7 increase in container revenue offset weakness in the company’s bulk shipping unit.

China Shipping Container Line’s net profit for its third quarter ended Sept. 30 soared to $322 million, reversing a $290 million loss in the third quarter of 2009, as revenue jumped 122 percent to $1.7 billion. China Shipping is eighth in overall U.S. container volume, handling 472,721 TEUs in the first half of the year.

Contact Joseph Bonney at jbonney@joc.com.