“K” Line has plans to shift its focus from “protective” policies to an “offensive” approach, according to the head of the Japanese shipping company.
“We are exposed to relentless international competition on a daily basis,” said Jiro Asakura, president and CEO of “K” Line, in his New Year message. “In light of these factors, it is crucial that we make radical changes to our traditional structure and methods to remain in the race.”
In terms of its container business, “K” Line will receive five new 13,870-TEU vessels in 2015 and 2016. These ships will improve the operating efficiency of the company’s container business going forward, according to Asakura.
“I am confident [the 13,870-TEU ships] will contribute to a major recovery in earnings,” he said.
Major carriers are banking on mega-ships’ efficiency to cut costs, as evidenced by the 24 percent increase in the average container ship size from 2008 to 2012, according to Alphaliner, as carriers will not be able to rely on freight rate increases in the near term, and thus need to find other ways to drive profitability. “K” Line, the smallest of the major Japanese carriers, will increase its fleet by nearly 20 percent with the addition of almost 70,000 TEUs of capacity by 2016, similar to Mitsui O.S.K. Lines, which will increase its fleet by 14 percent, but unlike NYK Line, which has no plans to receive new ships, according to Alphaliner.
But despite adding more than 30,000 TEUs, or 10 percent, of capacity since 2009, according to Alphaliner, “K” Line’s container trade volumes contracted on its intra-Asia and north-south routes in the first half of fiscal year 2013, ending Sept. 30, 2013, according to the company’s earnings release. Furthermore, profit from container ship operations plummeted 59 percent year-over-year in the same period.
Global vessel capacity is expected to break records through 2016, keeping supply and demand out of sync in the foreseeable future. The fleet of idled surplus container ships reached 718,000 TEUs in mid-December, and lay-ups are expected to persist in the next two years.
Slow-steaming, which absorbed 7.4 percent of global fleet capacity in 2013, is one technique carriers are using to help address overcapacity issues. Asakura said that thanks to slow-steaming and other cost-cutting measures, “K” Line expects that its earnings in fiscal year 2014 will surpass levels posted in the past two years.
In “K” Line’s most recent quarterly earnings report, released in October 2013, the company said: “Our earnings deteriorated from the year-ago period despite our aggressive attempt for the improvement of operating efficiency through the deployment of newly built, large energy-efficient ships, and for the cost-cutting measures, including slow-steaming.”
“K” Line added five 8,000-TEU ships in 2012, three 6,400-TEU ships and 12 4,500-TEU ships in 2010 and 2011 and four 8,000-TEU ships in 2008 and 2009. The 13,870-TEU ships on order represent a bolder move by the company to cut costs through the efficiency of even bigger ships as part of its new strategy.
“As a first step in our offensive management strategy, we decided to resume investments in our strengths in 2013,” Asakura said.
He noted that “K” Line will prioritize strengthening its logistics business, especially in Asia and Oceania, in an attempt to make it a core business division over the next decade. Additionally, the company is planning to build eight car carriers, move forward with the construction of a large iron ore carrier and coal carrier and expand its offshore energy exploration and production support unit. In terms of energy transportation, “K” Line has acquired contracts for three LNG carriers, and is expecting to secure contracts for a shale gas-related transport project.
------FM JOC
