Japanese carrier NYK Line expects its liner unit to make more money in financial year (FY) 2015, notwithstanding chronic overcapacity in the sector.
The company, led by Tadaaki Naito, forecasts operating profit of JPY27.5 billion (USD224 million) for its liner unit in FY 2015 against the FY 2014 result of JPY9.8 billion.
“While we also expect there will be some deterioration due to lower freight rates, we are projecting an improvement in earnings due to the depreciation of the yen, low fuel costs, and benefits from cost-cutting efforts,” said NYK at a briefing about its FY 2014 financial results.
Indeed, NYK – Japan’s second biggest shipping company – expects container freight rates in FY 2015 to be flat, or worse than in FY 2014.
Against the freight rate index on North American routes of 96 in FY 2013 and 91 in FY 2014, NYK is expecting 92 for FY 2015.
This is a point higher than the FY 2014 result and is due to changes in the portfolio of cargo that the company handles.
“While it is an increase in terms of the freight rate index, we don’t expect any significant change in actual freight rates. Further, we don’t see there being very much fluctuation in market rates on North American routes,” said NYK.
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On European routes, however, NYK is expecting the FY 2015 freight rate index to be 68 against 72 in FY 2013, and 70 in FY 2014. FY 2015 began with low rate levels at 66 in the first quarter.
NYK expects this to rise gradually to a peak in the period after May Day and then fall again after that. Because of this, NYK believes that the average will be around 68. The most recent spot freight rates are said to be at their lowest since the bankruptcy of Lehman Brothers, and we are starting from a very difficult situation.
However, market-linked cargo makes up less than half of NYK Line’s cargo, so the company thinks it can mitigate the impact.
When asked by analysts to elaborate on its cost-cutting efforts, NYK said performance in the liner trade segment improved by JPY10.5 billion year on year in FY 2014.
The company saved JPY19.5 billion from cost-cutting measures.
NYK explained, “Cost levels for inland costs such as trucking were basically flat until last year, but we are projecting that these costs will increase over the course of this year. However, we have analysed our positioning of containers from a round-trip perspective to efficiently use containers by controlling deployment to avoid waste. Because of this, we are projecting that our cost reductions will exceed the cost increases.”
NYK projects a FY 2015 overall profit of JPY55 billion, up 15.6% from FY 2014.