NYK Line to Book Extraordinary Loss
Japanese shipping line Nippon Yusen warned it would book an extraordinary loss of about $1.9 billion in the second quarter, forced by a deep slump in the shipping market to write down the value of container ships and other assets.
The huge writedown is the latest sign of a slowdown in the container shipping sector due to low freight rates and oversupply and comes after the collapse of South Korea's Hanjin Shipping.
It also said it may revise its full-year financial forecasts, including its dividend, adding it would announce any revisions on October 31 when it reports first-half earnings.
"It's really a perfect storm - NYK is a very diversified company with about 30 percent of their revenues coming from the containers business and almost 40 percent from bulk transportation," Ralph Leszczynski, head of research at ship broker Banchero Costa in Singapore.
"In normal circumstances such diversification would be beneficial for them. Unfortunately, this year has seen very challenging market conditions pretty much across all sectors," he said.
NYK Line, which was founded in 1885 and counts Mitsubishi Heavy Industries as a major shareholder, said it would book an impairment loss of 160 billion yen as well as provisions for losses of 35 billion yen related to contracts.
"Although the market is projected to recover in the first half of the fiscal year ending March 31, 2017, market indicators have not reached anticipated levels." NYK Lines said in a statement.
The company said it had been selling off or returning surplus vessels and had been scrapping ageing vessels, while adding that its subsidiary would take a loss on aircraft sales and lease contracts.
Earlier this month, NYK president Tadaaki Naito marked the 131st anniversary of NYK’s founding by addressing company employees at the NYK head office in Tokyo.
There are formidable rivals in the shipping industry competing against the NYK Group, he said. “We also must beat out new players from emerging countries, which are likely to rapidly grow more competitive in the future.”
The world’s population is forecast to steadily increase from the current level of about seven billion to almost 10 billion by 2050. A growing population means more international shipments of energy, food, and all kinds of other cargo.
“By transporting cargo, we provide a source of stability for the global community, and engage in work that helps people around the world pursue their dreams of happiness and prosperity. But the path to realizing dreams is very steep, with many bumps along the way, we may need to carry out reforms, which could be painful at times, in order to ensure the future growth of the NYK Group,” said Naito.
“Recognizing that everyone including me feels anxious about trying new ways or making changes, we need to be bold enough to implement them. To “overcome the raging seas” of today, let’s set a course for a brighter tomorrow and adapt the NYK Group to the days ahead with both courage and conviction.”