Mitsui O.S.K. To Invest $710m In New Cruise Ships

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Credits: Georgy Trofimov/ Unsplash
  • The vessels will be successors to the company’s Nippon Maru cruise ship, which was built in 1990 and is showing its age. 
  • The cruise industry was hit hard by the coronavirus pandemic, but MOL sees tourism demand recovering in the medium to long term.
  • In the shipping business, the company will focus on placing orders for LNG and ammonia carriers in the near term. 

Japanese marine transporter Mitsui O.S.K. Lines (MOL) will invest at least 100 billion yen ($710 million) on an order for two cruise ships, part of a long-term plan to diversify operations as a hedge against an unpredictable shipping market.

New cruise ships

MOL President and CEO Takeshi Hashimoto disclosed the plan during an interview with Nikkei recently.

The vessels will be successors to the company’s Nippon Maru cruise ship, which was built in 1990 and is showing its age. 

Their size is undecided, but the Nippon Maru has a passenger capacity of about 500. MOL is considering environmentally friendly fuels such as liquefied natural gas for the ships.

Tourism recover

The cruise industry was hit hard by the coronavirus pandemic, but MOL sees tourism demand recovering in the medium to long term.

“We will build two ships at first, and if things go well, we are thinking of expanding to four,” Hashimoto said.

Shipping companies have enjoyed record profits during the pandemic, with container rates rising on soaring demand and inflation. 

MOL’s finances have improved, and the company looks to strengthen its business-to-consumer areas in anticipation of the post-coronavirus era.

“Our options have expanded greatly,” Hashimoto said.

“This is a rare field that is growing in Japan,” he said of the cruise industry. “Our rivals are luxury hotels and Japanese inns. 

We can also expect inbound demand [from foreigners visiting Japan] to recover in the future.”

Container shipping

MOL’s profit model relies on container shipping, which is heavily influenced by market conditions. 

By focusing on areas like real estate and wind power generation in addition to cruise tourism, the company hopes to earn a stable net profit of 200 billion yen even after the record demand in container shipping eases.

Consolidated net profit for the year ending in March 2023 is expected to rise 11% to 790 billion yen, a record for the second consecutive fiscal year. 

Container shipping accounts for around 80% of MOL’s profit.

Supply chain

“There is a growing awareness among consignors of the need to prioritize a stably operating supply chain, rather than finding the absolute cheapest carrier,” Hashimoto said. 

“I think the market environment will be healthy enough to continue to make a profit from the next term onward.”

Equity and earnings

During an earnings press conference at the end of October, Hashimoto said he expects Ocean Network Express — the container transport company MOL owns jointly with Nippon Yusen Kaisha (NYK) Line and K Line — to make a profit of $2 billion to $3 billion for the year ending in March. MOL has a 31% stake in ONE.

MOL’s equity capital is expected to reach 2 trillion yen by the end of this fiscal year, quadrupling since the late 2010s.

Regarding consolidated net profit, Hashimoto said, “with an 8% return on equity, we expect at least 160 billion yen. 

As a target, we need to aim for about 200 billion yen (from the next fiscal year onward).”

This target is more than seven times the figure reported in the fiscal year ending in March 2019. At the beginning of this fiscal year, the company was anticipating pretax profit of 140 billion yen in the year ending March 2024.

MOL also invests outside of shipping. One pillar is real estate, where it made Osaka-based Daibiru a wholly owned subsidiary in 2022. 

Along with traditional ownership and rental, the company is entering real estate development, such as in Southeast Asia where it is investing 50 billion yen to 100 billion yen in mergers and acquisitions to accumulate know-how.

Diversification

In the shipping business, the company will focus on placing orders for LNG and ammonia carriers in the near term. 

But Hashimoto said “it doesn’t look like we’re going to dramatically expand the size of our fleet. It will be difficult to find growth if we don’t step away from maritime shipping and into areas such as real estate, the offshore business and warehousing.”

Pretax profit from businesses related to real estate, cruise ships and other areas totaled 12.9 billion yen in the year ending March 2019.

The trend toward diversification in the shipping industry is likely to accelerate. NYK Line, another major Japanese container ship company, is also turning to comprehensive shipping logistics.

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Source: Nikkei Asia

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