Japan’s shippers see buoyant earnings despite trade slowdown
Japans’s three largest maritime shipping companies are defying a slowdown in global trade, and are expected to report higher earnings due to a reduction in unprofitable routes and a temporarily lowering of capacity before stricter environmental regulations kick in next year.
Nippon Yusen, is expected to post a pretax profit of around 6 billion yen ($55.2 million) in the April-June quarter, while Kawasaki Kisen Kaisha appears to have earned between 2 billion and 4 billion yen in profit. This would be the first recovery to black ink by both for that quarter in two years.
One reason for the turnaround is a plan for tougher maritime environmental regulations in 2020, which is forcing companies to refurbish ships to meet the new standards. This has led to expectations that vessels will taken out of service through the second half of the fiscal year and thereby causing tighter supply.
Accordingly, the market has received a boost. The Baltic Dry Index, which measures prices for bulk carrier service, rose to its highest level in more than five years at the end of July.
Mitsui O.S.K Lines is also expected to post nearly 10 billion yen in pretax profit for April-June, a hefty increase from the 251 million yen earned a year ago, and the highest level for a first fiscal quarter since 2015.
Nippon Yusen and Kawasaki Kisen also saw an improvement in margins because of a reduction in auto carrier routes to Europe and other factors.
The major shippers saw an improvement in their container business, which they operate under a jointly owned company. Container ships were operating just under 90% capacity in the April-June quarter, about 20 points better than the same period a year ago. The net profit of the joint container shipping operation is expected to report a turnaround from the loss of $120 million incurred the same quarter a year ago.
The companies will announce their April to June earnings on Wednesday. The International Monetary Fund slashed expectations for growth in the global volume of trade in goods and services, reducing its estimate to 2.5% in 2019 from 3.7% the previous year.
Global risks including recent attacks on ships near the Strait of Hormuz, the world’s most important oil artery, are cause for concern, so the shippers are unlikely to change their projections for the entire fiscal year.