Losses on vessel leases and agency rationalization associated with the integration of the liner container shipping business

「The container shipping business recorded a substantial decline in profit from the previous fiscal year as market conditions entered a phase of normalization, despite some support for cargo demand from seasonal factors.」

「Although a large number of newbuildings entered service, supply and demand remained tight due to supply constraints from routing voyages via the Cape of Good Hope and strong cargo movement on European and North American routes, while spot freight market rates also remained high. As a result, our equity-method affiliate Ocean Network Express Pte. Ltd. also recorded a substantial increase in profit from the previous fiscal year.」

「The container shipping business operated by our equity-method affiliate OCEAN NETWORK EXPRESS saw a substantial decline in profit from the previous fiscal year due to persistently low freight market rates.」

「At our equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter, “ONE”), short-term freight market rates remained low due to sluggish consumption growth against a backdrop of prolonged inflation, as well as the increase in newbuildings entering service. As a result, ONE's profit declined substantially year on year.」

「At our equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter, “ONE”), short-term freight rates deteriorated as the vessel supply-demand balance softened against a backdrop of more newbuildings entering service. Period-contract freight rates also shifted to current-year rates reflecting the post-pandemic market, and these freight rate effects resulted in a substantial year-on-year decline in profit at ONE.」

「At our equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD., cargo demand declined as consumption in Europe and the United States stagnated under the impact of higher interest rates and inflation, and spot and period-contract freight rates fell, particularly on North American and European routes. Profit consequently declined substantially year on year, reflecting the reversal from the high freight rate levels during the COVID-19 pandemic.」

「At our equity-method affiliate ONE, short-term freight market rates plunged from August onward due to prolonged inflation in Europe and the United States, weaker cargo demand caused by inventory accumulation in the United States, and increased supply as port congestion eased. Profit declined in the consolidated third quarter compared with both the same period of the previous year and the first and second quarters of the current fiscal year. However, backed by the accumulation of profit in the first half, profit for the cumulative third-quarter period increased year on year.」

「At our equity-method affiliate ONE, spot freight rates fell sharply from mid-August, but the average for the period remained substantially above the level of the same period of the previous year. Together with the impact of long-term contract freight rates agreed at higher year-on-year levels, this resulted in a substantial year-on-year increase in profit for the container shipping business.」

「At our equity-method affiliate ONE, spot freight rates remained substantially above the level of the same period of the previous year despite the impact of softer supply and demand caused by the lockdown in Shanghai and other factors. Long-term contracts reflecting the previously high freight rates lifted earnings, and the container shipping business consequently recorded a substantial year-on-year increase in profit.」

「The container shipping business recorded a substantial increase in profit as strong transportation demand and logistics disruptions caused short-term freight market rates to surge.」

「At our equity-method affiliate ONE, cumulative cargo volumes through the third quarter increased year on year on the back of strong cargo demand, although third-quarter cargo volumes declined year on year, particularly because port congestion in North America reduced available vessel capacity. Meanwhile, continued disruption across the supply chain, including ports and inland transportation, kept supply and demand tight, and spot freight rates rose substantially year on year. Increased profits from the recovery in handling volumes in the port and logistics business also contributed, and the container shipping business consequently recorded a substantial year-on-year increase in profit.」

「Operational disruptions, including those at ports and in inland transportation and vessel schedules, had a significant effect on supply and demand, causing spot freight rates to rise substantially year on year. As a result, the container shipping business recorded a substantial year-on-year increase in profit.」

「Supply and demand tightened, and as a result spot freight rates remained substantially above the level of the same period of the previous year, container shipping recorded a substantial year-on-year increase in profit.」

「In container shipping, our equity-method affiliate ONE saw strong cargo movement from the summer onward, particularly on North American routes, driven by stay-at-home demand. However, supply was constrained for various reasons, including port congestion caused by labor shortages and container shortages in Asia, and spot freight rates remained substantially above the level of the same period of the previous year.」

「At the company’s equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD., cargo movements remained firm, particularly on North American routes, and spot rates remained well above the year-earlier level, partly because of container shortages in Asia. Fuel oil prices also remained low, as in the first half, resulting in a substantial profit.」

「At the company’s equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD., volumes declined year on year, but spot rates remained well above first-quarter levels as supply-demand conditions tightened with the recovery in cargo movements, particularly on North American routes. Combined with fuel oil prices remaining low, as in the first quarter, this resulted in a substantial profit.」

「Under these business conditions, we implemented additional capacity reductions on both the North American and European routes to minimize the decline in utilization, while advancing cost reductions. Together with the benefit of lower fuel prices, this resulted in a profit in the first quarter.」

「Regarding the losses related to charter contracts recorded in fiscal 2017 in connection with the integration of the container shipping business, we have recorded ¥8,243 million because additional losses are expected after reflecting the latest trends in charter rates and costs for the fleet, which were the assumptions underlying the estimate.」

「The company’s equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter “ONE”) achieved profitability in the third quarter as cost reductions progressed more than expected, following profitability in the first half.」

「The earnings of the company’s equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter “ONE”) improved and reached the level of profitability anticipated at the beginning of the fiscal year. Volumes also improved substantially year on year as services stabilized.」

「At the company’s equity-method affiliate OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter “ONE”), volumes improved substantially year on year as services stabilized. Additional blank sailings were implemented on both North American and European routes to minimize the decline in load factors, and the effects of cargo portfolio optimization and cost reductions enabled the company to return to profitability in the first quarter.」

「In addition, transpacific westbound freight rates remained firm and efforts to accelerate the collection of container demurrage, among other factors, helped narrow the loss in the second half more than expected, although a loss was still recorded.」

「Load factors, which had been weak in the first half, improved substantially overall, although some routes, including European routes, remained below expectations. In addition, firm northbound trans-Pacific freight rates and the effects of other operating-cost reduction measures helped narrow the loss in the third quarter more than expected, despite the company recording a loss.」

「Although synergies from the business integration have emerged more quickly than initially expected, the decline in cargo volumes and slot utilization caused by service disruptions immediately after operations began in April has not been fully recovered even through the summer peak cargo season, and performance remained below expectations. In addition, higher costs to reposition containers to Asia due to lower cargo volumes on westbound services from North America to Asia and from Europe to Asia put further pressure on profit and loss, and the company recorded a loss for the six-month period ended in the second quarter of the current fiscal year.」

「In addition to cargo volumes falling below expectations due to service disruptions during the launch phase, fuel prices rose more than expected, resulting in performance below expectations.」

「In connection with this business integration, we entered into vessel lease agreements with the operating company and are leasing to it the container vessels that we had previously operated. As losses related to the leases and losses from the rationalization of our agencies and other items are expected to arise from the next fiscal year onward, we recorded total business-restructuring-related losses of ¥73.4 billion, mainly consisting of provisions for these losses.」