Summary of Q&A Session at Briefing on Financial Results
for the 2nd Quarter of the Fiscal Year ending March 31, 2012
Q1 Your forecast for the freight rate index on European routes in the second half is the same as
the second quarter result of 74, but could you provide a break down of your forecasts for the
third and fourth quarters?
A1 We expect 73 in the third quarter and 76 in the fourth.
Q2 Your European cargo space is up 3% over your previous forecast. Do you have any plans to
reduce tonnage capacity? Also, what is your opinion about laying up vessels?
A2 We are running a bit behind in the start of our winter program for tonnage supply but plan to
start it soon. Although current freight rates remain very low, they are higher than the “lay-up
point”. Other companies most likely are in the same position as ourselves, and we do not
think this situation can continue much longer. We are now proposing rate hikes to our
Q3 Please give us your thoughts on the progress of reforms, such as the acceleration of the
move to a light-asset business model, and on longer-term prospects for improving profitability.
A3 If market conditions remain as they are now, some companies specializing in container
vessels may have to pull out of the business. Even in a worst-case scenario, the combined
profits of our Liner Trade, Terminal and Harbor Transport, and Logistics segments should stay
in the black, with a reduction in the size of our container fleet helping to reduce red ink in the
Liner Trade. Since the start of the post-financial Crisis economic slump, we have reduced
fleet size, but contract periods on some chartered vessels have yet to expire. The return of
these chartered vessels should help us realize the benefits of our transition to a light-asset
model from 2014. As for accelerating the implementation of our plan, we will base any such
decisions on conditions in our operating environment going forward. While reducing profit
fluctuations in our Liner Trade, we are also aiming at early realization of our fiscal 2013 target
of one million TEU in handling volume at our forwarding business.
Q1 You have lowered your projections for the number of automobiles to be shipped in the second
half owing to the impact of the floods in Thailand, but could you please provide a breakdown
of the expected volumes to be shipped from Thailand versus volumes from other locations?
A1 We chartered vessels based on our previously bullish outlook for car export volumes from
Japan, but we have lowered our second-half shipping projection from 1.77 million cars to
1.63mn in light of the Thai floods and automakers’ own downward revisions to exports from
Japan owing to yen appreciation. The reductions in assumed shipments from Japan and
Thailand are about even.
Q1 You have said that you expect profitability in the cruise business to improve next year, but can
you give us more specifics?
A1 For our Crystal Cruise business in North America and Europe, we have implemented the
“Revival Plan,” which includes breaking from the past rigid pricing system to more flexible
pricing of our cruises. As a result, bookings for 2012 cruises are shaping up nicely. Meanwhile,
the profitability of our Asuka II cruises for the Japanese market has deteriorated amid a wave
of cancellations owing to the Great East Japan Earthquake and piracy incidents off the coast
of Somalia. We plan to turn this business around by reviewing schedules and marketing
Corporate / Others
Q1 How have you reflected the impact of Thai flooding in the downward revision to your earnings
A1 In our Liner Trade segment, we assume that the decrease in shipping volumes from Thailand
will be offset by increases from other locations. In our Logistics and Air Cargo Transportation
segments we think the overall impact will be negligible, because we expect shipments of
goods used in recovery efforts to offset the current decline in cargo shipments to and from
Thailand. We are concerned about the impact on marine and land transport shipping volumes
in our Car Carrier Division, but at this stage we are not able to accurately ascertain the
specific impact on division profits.
Q2. Could you let us know the factors you expect to have a negative impact on this year’s
earnings only, and any factors you currently foresee as earnings drivers next year?
A2 The Great East Japan Earthquake of course has affected all of our businesses. We expect to
post extraordinary losses or profit declines of several tens of billions of yen, with the impact
most severely felt by our Liner Trade segment, Car Carrier Division, and Cruise segment.
The impact of flooding in Thailand is a concern for the second-half performance of our Car
Carrier Division, but we also expect the division’s performance to rebound sharply in fiscal
2012 as conditions in Thailand improve. The Dry Bulk Carrier Division and the Tanker
Division are both proceeding with the disposal of unprofitable vessels, and we expect both
divisions to show profit improvements in fiscal 2012. We have similar expectations for the
Cruise segment, which currently is revising its marketing practices and propping up its
operations. In addition, we are expanding our forwarding business as we work toward our
goal of one million TEU in handling volume in fiscal 2013. We believe expansion of this
business will enable us to maintain solid profits in our Logistics segment even when container
market conditions deteriorate.
Q3 Have you made any revisions to your cost-cutting targets for this fiscal year? If so, could you
please provide a breakdown of figures for the Liner Trade segment and other segments?
A3 Planned cost reductions for the full year amount to about ¥24 billion. We made good progress
toward this goal in the first half, reducing costs by ¥12.9 billion, of which ¥5.7 billion came in
the Liner Trade segment. Half of the cost cuts in the Liner Trade segment were achieved by
reducing fixed costs, such as expenditures on fuel and ships, the other half came from cuts to
variable costs. The bulk of cost cuts in other segments stem from reducing consumption of
Q4 Would you please explain the factors behind the ¥30 billion reduction in your original forecast
for investment cash outflows in fiscal 2011? The medium-term plan targeted investments of
¥200 billion. Do you plan to make further cuts to planned investments over the next two
A4 We expect a reduction of ¥18 billion from investment cuts and ¥12 billion from asset sales.
We do not plan any major structural reforms and plan to reduce overall investment levels by
being more selective.