Chief executive Yukikazu Myochin has revealed more of K Line's strategy for navigating the choppy waters of the coronavirus pandemic.
In the giant Japanese shipowner and operator's 2020 business report, he outlined how the "rebuilding portfolio" plan will work, following a review of operations.
"Continuing our business growth in fiscal 2020 will first require a specific plan to deal with the impact from the Covid-19 pandemic," Myochin said.
The fundamental approach is to respond quickly to current business conditions, while also preparing for a changed landscape after the pandemic has faded.
Lay-ups planned
"We are responding to temporary declines in demand by controlling our vessel capacity and lowering operating costs," he explained.
"While closely monitoring demand trends, we will cut costs by reducing ships' speed, decreasing frequency of sailings and laying up ships out of service. We will also return chartered ships to owners and actively dispose of our own vessels, especially older ships."
TradeWinds has reported that around 10 capesizes have been sold by Japanese owners in the second half of this year, making the country the most active seller of such tonnage in 2020.
K Line has sold three vessels to Berge Bulk in that period.
The company said that, to prepare for a reduction in revenue, it is ensuring "ample ready liquidity" in the form of cash reserves and bank lines of credit.
Stable earnings
The shipowner expects revenue to fall by more than double the amount seen during the 2008 global financial crisis.
Another main aim is to increase the number of vessels "drawing stable earnings" by boosting term contract cover, Myochin said.
The group has hiked the number of medium and long-term charters for the fleet, particularly for large bulkers and LNG and thermal coal carriers.
K Line also wants to reduce its presence in businesses susceptible to market fluctuations. It has already withdrawn from product tankers and has sold one offshore support vessel.
The group retains three chemical carriers and two bunker tankers, according to Clarksons.
K line is now targeting sales of small and medium-size dry bulk ships and inefficient container vessels.
"While the Covid-19 pandemic remains during fiscal 2020, we plan to supplement our equity capital by disposing of old ships and selling real estate and other assets," Myochin said.
Controlling risk
He explained that the group can control the amount of risk it undertakes by using a database on long-term market fluctuations and shipping rates.
"Putting this into practice will enable us to scrupulously manage risk in each business division and identify the risk return for each investment project, which in turn will allow us to more effectively allocate our management resources," he added.
Earnings improved substantially last year in the energy transport division, due to "diligent efforts" to increase term charters for the coal carriers and LNG ships.
Car carriers and bulkers to be hit
But he expects the car carrier and bulker businesses to be strongly affected.
Myochin said temporary declines in demand from developments such as production stops at carmakers and suspended operations at construction sites will probably be significant in the first half of the fiscal year, then linger to some degree in the second half.
"Demand from steelmakers is also down, and we expect production cutbacks from major steelmakers shutting down their blast furnace operations to severely impact demand in the first half," he said.
"There is some concern about repercussion for the offshore support vessel business, but the impact on businesses for other types of vessels will likely be limited because they are mostly chartered vessels under medium and long-term contracts."
Fifty ships to go
In August, the shipowner unveiled plans to slash its long-term fixed core fleet by more than 50 vessels over the next five years.
It will cut at least 20 ships within the 2020 financial year, with the remaining 30 set to go by 2025.
The fleet stands at around 460 units across all segments, of which 200 were owned and 260 were chartered in as of the end of June.
The company spun off its boxship operations into Ocean Network Express with rivals NYK and Mitsui OSK Lines in 2018.
But a rebound in container vessel demand led it to raise its profit forecast for the first six months of its fiscal year beginning on 1 April.
The shipowner is predicting net earnings of ¥8bn ($76m) for the period, compared with a loss of ¥3.5bn predicted in August. The actual result was ¥16.3bn in the same period of 2019.
