MOL "Winterizing" Strategy: Divests Bulk Shipping Business
2016-03-01 09:00
MOL recently announced plans for a business restructuring, effective April 1, 2016, separating its businesses to mitigate the impact of the global economic downturn.
MOL stated that, according to its "business structural reform," this restructuring includes establishing a new dry bulk carrier branch to optimize fleet allocation and improve management resource utilization through the most effective implementation of the business structural reform plan. The dry bulk carrier branch will also have a planning department and two operating companies: Company A responsible for coal and iron ore; and Company B responsible for general cargo and thermal coal.
The plan includes further reducing the number of Capesize, Panamax, and smaller dry bulk vessels in the spot charter market, focusing on meeting core customer transportation needs. The company will also optimize its container shipping business, targeting more profitable cargo, especially on North-South routes.
Additionally, MOL revealed that after separating the dry bulk carrier business, a new energy transportation business branch will be established to manage various vessel types. This department will manage oil tankers and offshore support vessels. Furthermore, coal carriers and wood chip carriers will be included in the energy transportation branch. MOL also plans to reduce some dry bulk assets currently without long-term charters.
MOL also stated that due to this restructuring, the company expects a loss of up to 180 billion yen in the fourth quarter of this fiscal year, including losses from the disposal of dry bulk and container vessel assets. Previously, the company stated that it expected revenue of 13.2 billion yen (approximately $110 million) in the fourth quarter, a significant decrease compared to $24.8 billion in the same period last year. The company attributed the year-on-year decline in fourth-quarter performance to the sluggish container and dry bulk shipping businesses. In the long term, the company expects a loss of 175 billion yen (approximately $1.45 billion) for this fiscal year, a significant increase from the previously predicted loss of 17 billion yen.
These projections are based on the Baltic Dry Index recently hitting a record low of 325 points. MOL operates one of the world's largest dry bulk fleets, with current dry bulk freight rates down over 70% from their 2015 peak and 97% down from their 2008 peak.
With declining exports and slower economic growth in Asian trading powerhouses such as China, South Korea, Japan, and Taiwan, demand for dry bulk carriers transporting iron ore and coal, and container ships transporting manufactured goods, has also decreased. Meanwhile, new vessels continue to join the fleet, competing for increasingly scarce cargo.
According to Clarksons Research, a British shipping services company, global dry bulk and container shipping volumes are projected to grow by 1% and 4% respectively in 2016. However, dry bulk and container vessel capacity is expected to increase by 12% and 6% respectively.
In 2015, several Asian shipping companies declared bankruptcy, and analysts predict bankruptcies will be more common in 2016.
MOL currently has over 400 vessels with a total tonnage of approximately 36 million deadweight tons.
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