NYK Line has written down the value of its assets by a total of ¥195bn, roughly US$1.9bn, covering both aircraft as well as container and bulk ships, in a move that illustrates the state of the global freight market.
The write down covers both the revenue that such assets are believed to be able to earn, as well as their value if sold.
The largest element of the financial revision is the adjustment to the worth of the container ships that NYK owns. The estimation of their value has been reduced by ¥100bn. As the company commented, this is as much to do with the immediate prospects for demand and freight rates, as the collapse of the price of container ships. The company stated, “although the market is [was] projected to recover in the first half of the fiscal year ending March 31, 2017, market indicators have not reached anticipated levels. In that light, NYK Line has reassessed its outlook for the market from a conservative perspective, and, as a result, deemed it necessary to record an impairment loss as well as a provision for losses related to contracts in connection with its container ships.”
The situation is similar in the bulk shipping market which NYK brutally describes as being “in a slump as a result of an excess supply of tonnage and sluggish demand for shipments.” The recovery in the market is elusive, thus leading to a write down of ¥85bn.
Slightly more surprising is the move to revalue the company’s air freight assets. NYK has struggled for some time to make money from its air freight services out of Japan and this has led to continuing restructuring of its operations. It has now decided to sell three of the aircraft it owns with implications for their book value on the company’s accounts. It is also revising down the prospects for the aircraft it leases as well. This is resulting in a write down of ¥10bn.
NYK Line has not yet absorbed these write downs into its consolidated results. As they are a mix of decreased book value as well as revisions on expected revenue the impact will not be straightforward.
These numbers are generally being received as the result of the problems in the shipping market, and in part they are. However, the inclusion of aircraft in the write downs illustrate that the shipping market is not the only distressed freight sector. There is a general mismatch between demand and supply which even the most accommodative monetary policy cannot resolve.
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Source: Transport Intelligence, October 10, 2016
Author: Thomas Cullen