“K” Line takes half a billion Euro loss provision on ONE


The Japanese shipping line, “K” Line, has declared savage write-offs for its container shipping business.

In a note issued on March 7, prior to the publication of its full annual results on April 26, “K” Line’s management stated that it “considered the business structural reforms for the purpose to improve our own fundamental profitability through next fiscal year onwards and, as a result K Line estimates approximately ¥65bn (€0.52bn) followed with provision for loss related to containerships chartering to OCEAN NETWORK EXPRESS PTE. LTD. (“ONE”), the Company’s equity-method affiliate, as well as chartering cancellation of containerships and dry bulkers”.

This has happened because of the “teething problems” problems of the ‘Ocean Network Express’ (ONE) joint venture that was set up between “K” Line, Mitsui OSK and NYK. For the first few quarters of 2018 this suffered from severe problems with its customer-facing container booking system leading to a painful reduction in business and a need to make big discounts in rates in order get the customers back. The result was both lower volumes and lower profits. The idea of the joint venture was to create a virtuous circle of higher volumes, lower freight rates, better ship utilisation and improving profitability. The reverse has happened. The partners of the ‘Ocean Network Express’ find themselves with too many ships and too little profit. The result is a rationalisation of the “K” Line fleet by returning chartered the vessels to their owners.

The impact of these problems on “K” Lines finances may not be wholly clear until the publication of the annual accounts in April, however the company has estimated that operating losses for the year will increase from ¥5bn (€40m) to ¥21bn (€170m) whilst ‘ordinary income’ will be negative to ¥46bn (€36bn), down from a previous estimate of a negative ¥28bn (€22bn). A question remains over the nature of this impact on “K” Line’s cash flow as opposed to capital value write-downs.

Either way this development is not good for “K” Line. It does raise questions over the strength of the company’s finances, although with the proviso that ONE appears to have turned its business around and now ought to be a source for profit rather than loss. It also suggests that the other parties in the ONE joint venture, that is NYK and Mitsui OSK, will take significant hits to their finances as well. 

Source: Transport Intelligence, March 14, 2019

Author: Thomas Cullen

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