It's Been a Tough Summer for Mitsui O.S.K. Lines

After posting a loss of about ¥ 7.4 billion (USD $95 million) on the write-down of investment securities as a result of a decline in stock market prices, the world’s largest shipping company, Mitsui O.S.K. Lines (MOL), announced today that they are revising their business outlook for the first half of FY 2012, an outlook which was originally issued on July 31, 2012.

MOL predicts their profits will deteriorate further than expected due to continued weakness shown in the dry bulker market, where they hold the world’s largest market share, and a softening of the supply-demand environment within the containership sector. MOL’s containership fleet consists of 100 vessels ranging in size from 700 to 8,000 TEU.

Yen Appreciation and Higher Bunker Prices

With freight rates largely denominated in US dollars throughout the international maritime shipping world, currency fluctuations may also have a large impact.

MOL has stated that a ¥1 appreciation against the U.S. dollar, averaged over the course of a year, will negatively affect their ordinary income by ¥2.0 billion. As the above chart shows, comparing todays value of ¥78, to a value of ¥83.7 in late March, the delta is ¥7.7. Averaged over a year, currency spikes like the one seen in April could significantly affect MOL’s bottom line.

Increases in bunker prices this summer will have the same effect. MOL notes that an average rise of $1 in the price of heavy fuel oil per metric ton will result in a lower ordinary income of ¥0.2 billion over the course of a year. At the end of July, bunker prices in Singapore were $632/ton, compared to today’s price of $659. Should bunker prices remain high, a difference of $27 in average fuel costs would equate to a loss of $69 million.