By Mike Wackett
Japanese shipping groups K Line, MOL and NYK, now operating as the Ocean Network Express (ONE) joint-venture, have unveiled their business plan, identifying more than $1 billion a year in expected synergy cost savings. The three carriers have signed off their final annual accounts covering the period before the transfer of their container businesses on 1 April. Henceforth, the Japanese trio will record container earnings through their equity in ONE, in which NYK holds a 38 per cent stake and K Line and MOL a 31 per cent share each.
The three shipping groups spent significant amounts to form ONE, with K Line reporting $220 million in related costs. MOL incurred a ¥47.4 billion ($430 million) net loss for its fiscal year ending 31 March which it blamed on losses “related to business restructuring”. It decided to take a hit in its 2017 accounts for losses in relation to the integration of the business into ONE, which are projected to be incurred “from 2018 and afterwards”. It said these included losses expected to be incurred on the “charter-out of vessels to ONE, losses on liquidation of the company’s agencies and others”.
However, MOL’s compatriots, NYK and K Line, were still able to record net profits of ¥20.1 billion and ¥10.5 billion respectively in their 2017 accounts. In its final individual comment on liner trades, NYK reported that “shipping traffic was brisk along transpacific routes”, but added that increases in spot rates had “largely come to a standstill due to the impact of growing shipping capacity”. It attributed the cause of the overcapacity to “the production of new ultra-large containerships”, but said it was itself migrating to ULCVs to “optimize vessel assignment and economic performance”.
Now ONE has published its three-year business plan and is predicting total revenue in the first year of $13.2 billion, rising to $13.9 billion in 2019 and $14.2 billion in 2020. It predicts that 47 per cent of its revenue will come from its transpacific trades, 24 per cent from Asia-Europe and 13 per cent from intra-Asia services. The ONE portfolio target is for weekly liftings of 345,000 TEUs – 39 per cent on the transpacific, 24 per cent Asia-Europe and 22 per cent intra-Asia. It said: “Steady demand growth is expected against a background of a relatively favourable global economic situation, so the demand-supply will be stabilised on a mid-term basis.”
ONE is forecasting a net profit for this year of $110 million, with the majority of that ($107 million) expected to be earned in the second six months. For 2019, it expects to turn a profit of $313 million and to more than double that the year after, to reach $648 million.
Synergy savings from the merger are targeted at $1.05 billion a year, 60 per cent coming through in the first 12 months, 80 per cent in the second year and the full 100 per cent by year three.
According to ONE, $430 million will come from savings on operational costs, such as feeders, trucking and terminal charges, where it will not only use the lowest tariff of the three carriers, but also negotiate reduced rates for higher volumes. A further $370 million is expected to be saved in IT costs and “rationalization of the organization”, with the final $250 million annual savings gained from a reduction in bunker consumption and “product rationalization”.
ONE said it had seven newbuild vessels of 14,000 TEUs planned for delivery this year and expected its total fleet at the end of its 2018 fiscal year to consist of 224 ships, amounting to 1.55 million TEUs.
Reprinted courtesy of The Loadstar (www.theloadstar.co.uk)