Profits Rise But Revenues Tank For Japan's K-Line

Kobe, Japan-headquartered ocean shipping company Kawasaki Kisen Kaisha Line (K-Line) has swung its bottom line profit figure from red to black. But even though profit increased, the top line revenue figure took a big tumble.

Japan's financial year runs from April to March. So, for K-Line, April to June is the first quarter.

K-Line (JPX: 9107) reported revenues of 183.31 billion yen (US$1.69 billion) in its first quarter.
That's a 13.6 percent decline from revenue of 212.18 billion yen recorded for the three months to June 30, 2018.

However, happily for the company, it swung big losses last year into small profits this year.

K-Line's operating revenues for the first quarter of the Japanese financial year stood at 4.05 billion yen (US$37.28 million). That's an increase of 17.42 billion yen (US$160.3 million) from the prior corresponding period.

Profit attributable to owners also saw a huge turnaround. At the end of the first quarter of the Japanese financial year, K-Line reported 7.78 billion yen (US$71.57 million) in profits attributable to owners. In the prior corresponding period it had made a substantial loss and so the first quarter of the new fiscal year figure represents a 27.05 billion yen (US$248.87 million) increase.

All revenue and profit figures hereafter are in billions of yen, unless otherwise stated. One billion yen is worth, at the time of writing, about US$9.17 million.

K-Line is active in a number of freight and ancillary businesses. These include marine freight, shipping agency, terminal operations, ship management, harbor transportation (tugs and towage), warehousing, logistics, land transportation, container repair and other businesses.

Dry bulk

K-Line reported a decline of 9.1 billion yen in its dry bulk revenues. Its first quarter figure stood at 55.5 billion yen in the three months ended June 2019. That's a 14.2 percent decline. The company also recorded a small loss of 0.4 billion yen in this segment.

As with the other large Japanese multi-fleet operators, K-Line noted that freight rates for capesize dry bulk shipping were weak in the early part of the year due to the effects of the failed-dam tragedy in Brazil. K-Line noted that iron ore prices rose later in the year due to an upturn in Chinese steel production. And that led to a general recovery in the charter market.

In the medium- to smaller-size vessel freight markets, grain shipments from South America drove a rise in rates for the Atlantic trades. That, in turn, led to a concentration of ships in that ocean and an easing of rates. Globally, the vessel supply-demand imbalance continued despite the scrapping of larger ships as "new medium- and small-size vessels were launched one after another."

K-Line noted that it sought to reduce operational costs and increase efficiency but, nonetheless, the dry bulk segment went into decline.

Looking forward, K-Line noted concerns over "protracted trade disputes" between the U.S. and China and a slowdown in demand for Chinese steel. However, it hopes for an improvement in the vessel supply situation due to the practice of sailing more slowly, the implementation of new environmental regulation (presumably IMO 2020) and an increase in scrapped vessels.

"As a result, market rates are expected to generally improve, mainly in the Cape-size sector," the company said.

Energy resource transport

K-Line groups together LNG carriers, oil tankers and thermal coal bulkers in this category.

This business division experienced largely flat revenues. It recorded 20.2 billion yen for the first quarter of fiscal year 2018 and 20.5 billion yen in the first quarter of fiscal year 2019. However, the segment profit rose a spectacular 525.8 percent!

In absolute terms it was rather less spectacular, increasing from 0.3 billion yen to 1.8 billion yen. Still, 1.8 billion yen is equivalent to about US$16.6 million.

LNG carriers, large crude oil tankers, LPG carriers and thermal coal carriers experienced "firm" business because of their mid- and long-term charter contracts.

"The overall transportation business recorded year-on-year increase in both revenue and profit," the company said.

Product logistics

The word "product" in the maritime world usually means "products of oil" e.g. gasoline. However, like the other Japanese carriers, K-Line uses the word "product" to mean general cargo of various kinds. K-Line also puts it car carrying business in this segment.

Revenues in the product logistics segment fell by 17.1 percent, reducing by 20.4 billion yen to 98.7 billion yen in the three months to the end of June this year. But the segment experienced a large 18.6 billion yen turnaround from loss to profit. K-Line's first quarter 2019 product logistics segment recorded a 1.8 billion yen profit.

Product logistics (A): automotive carriage

The volume of shipped finished vehicles declined in several regions, including South America, but stable cargo movements were "maintained" in the trades from the Far East. K-Line carried a total of 913,000 units.

There was also a "rationalization and realignment" of unprofitable trades.

K-Line's car carrying business recorded a year-on-year increase in revenues and generated a profit for the company, K-Line said.

Looking forward, it is potentially a bit of a mixed bag for the car carrying business. K-Line notes that there is growing uncertainty over finished vehicle sales markets because of U.S. tariffs and the U.K.'s "planned" withdrawal from the European Union. But, more immediately, the company is optimistic that earnings will improve due to improvements in ship allocation and operational efficiency through a realignment of the car carrying trade.

K-Line expects to increase the number of vehicle units to be handled to expand to between 2.45 million to 2.56 million in the full financial year.

Product logistics (B): other

K-Line commented that in the domestic logistics sector, business performance "remained steady" due to towage, sea-land integrated transport and warehousing.

International logistics did not fare as well; intra-Asia cargo and air cargo volumes declined due to reduced demand. And the trade war between the U.S. and China did not help matters either, helping to drive down cargoes.

As a result, the overall logistics business recorded a year-on-year decline in revenue and profit.

Looking forward, K-Line expects continued stable earnings in the domestic logistics sector in towage, sea-land integrated transport and warehousing. And, despite the U.S.-China trade dispute, K-Line expects demand for North America will remain "robust" with southeast Asia and Central America being used as "alternative exporting areas."

Containerships

K-Line is an investor and participant in the Ocean Network Express, or ONE. Details regarding ONE are not covered in this article because FreightWaves reporter Mike Angell has provided an in-depth report on that company's results. However, in short, K-Line said that ONE had achieved freight rate increases in long-term contracts in North America services and had experienced steady liftings. But, it added, there was a decrease in rates in Europe-dominated services.

"As a result, ONE overall recorded a year-on-year increase in revenue and turned a profit," K-Line said.

Overall, in conclusion, the company commented that, "although the forecasts of full-year results are expected to be recovered into profit, we consider it an urgent management priority to improve our financial strength and stabilize our business foundation."

K-Line operates 489 vessels with a combined deadweight tonnage of 40,942,690 deadweight tons. Deadweight is a measure of the carrying capacity of an ocean going ship and it is measured in metric tonnes. One metric tonne is equivalent to 2,204.6 U.S. pounds.

The company operates 199 dry bulk carriers, 27 thermal coal carriers, 48 liquefied natural gas carriers, 20 oil tankers, 85 car carriers, 47 box ship and numerous other vessels such as offshore support craft, short sea and coastal ships.

K-Line celebrated 100 years of history in April 2019. Today, the company is active around the world and has just over 6,000 employees globally.

Image sourced from Pixabay