Mitsui O.S.K. Lines Ltd. said its container unit may be unprofitable for two more years as rising global capacity and slowing world trade damps rates.
Mitsui O.S.K. Lines Ltd., the world"s largest shipping line by fleet size, said its container unit may be unprofitable for two more years as rising global capacity and slowing world trade damps rates. The unit will make a loss in the year ending March 2011, Executive Vice President Masakazu Yakushiji said in an interview in Tokyo yesterday. It may be able to return to profit the following year if rates rise, he added.
The container unit, heading for a second straight loss this year, plans to cut costs 30 percent next fiscal year and delay new vessels to tackle the slump. Evergreen Marine Corp. and China Cosco Holdings Co., Asia"s two largest container lines, have also posted losses, as recessions in the U.S. and Europe slash demand for shipments of furniture, auto parts and consumer electronics.
Shipping lines can only ?lose less by doing less,? said Johnson Leung, a Hong Kong-based analyst at Tufton Oceanic Ltd., the world"s largest shipping hedge-fund group. ?Oversupply is not something you can solve in a year.?
Mitsui O.S.K., which gets about 34 percent of revenue from containers, has cut its box-ship fleet to 98 vessels from 115 since March.
That reduction will contribute to support costs at the container unit falling to about 20 billion yen ($219 million) in the year ending March 2011, Yakushiji said. The company may also move some administrative work to countries with lower labor costs, he added. No further reductions in fleet size are planned at present, he added.
?We"re working to cut losses? at the container unit, Yakushiji said. ?We want to make it profitable within three years.?
South America, Europe
The company is boosting container services to Brazil and other South American countries to take advantage of a growing market, Yakushiji said. On Asia-Europe routes, the company has boosted rates by about $200 per container in the past few months, he said. Still, the outlook remains weak, he added.
Industrywide, Asia-to-U.S. container traffic dropped for a 22nd month in July, with volumes falling 13 percent from a year earlier, according to the Japan Maritime Center. Container lines worldwide may lose at least $20 billion in 2009, the Transpacific Stabilization Agreement, a shipping group, said on Oct. 7, citing Drewry Shipping Consultants Ltd.
Mitsui O.S.K. rose 0.9 percent to 570 yen at the close of trading in Tokyo. It has gained 5.2 percent this year compared with a 5 percent increase for the Topix Index.
The container division will probably have a pretax loss of 40 billion yen in the current fiscal year, the company said in July. Overall, the shipping line expects a net profit of 30 billion yen this fiscal year, helped by demand for shipping iron ore to China.
The company will announce third-quarter earnings and any changes to its full-year forecast on Oct. 27.