Japan Focus: MOL, NYK and K-Line

By Matt Flynn

Can Japanese Liners Untangle?

The earnings of the liner divisions of the major Japanese carriers are consistently wreaking havoc. Even at best, the units can be diplomatically be called “swing divisions” as the cycles of the container freight rates push the divisions in or out of the black. The news for container rates in turn then pushes investors in or out of the shares and contributes a large measure to the volatility of the share prices. For decades, the liner divisions have long been under water with 1999 and 2000 the only two profitable years in memory.

“It is easy to understand how (global) liner companies lost money in 2002, I actually find it hard to understand how a few of the companies actually made money,” said one Japanese liner executive in frustration. While none of the three companies are releasing results for this or any other sector, it is fairly widely known that the Japanese liner divisions slipped back into deficit for both 2001 and 2002 despite unprecedented cost cutting campaigns.

Analysts have regularly called for the liner divisions to be spun off into separate companies so the parents can enjoy better investor appetite for equities, and better rating agency assessments of their debt. This is unlikely to happen, primarily because the companies have dedicated so much management effort to cutting costs and also are investing heavily in new containership tonnage.

“The focus is on the liner division to make it as profitable as the car carriers,” said Tadashi Okuda,

finance general manager at MOL, who acknowledging that “Domestic shareholders are fairly comfortable with MOL, but some foreign investors focus on what they perceive is high risk of exposure to liner sector.”

The liner division is a priority focus in FY 2003 for meeting the ambitious plans of MOL next and the success will be crucial in maintaining MOL’s credibility in meeting multi-year profit improvements.

This is only an excerpt of Japan Focus: MOL, NYK and K-Line

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