Issue: Jan 2009


AI speaks to Rudolf Luttmann, general manager of Mitsui O.S.K Bulk Shipping



by Michael Stewart

This month, Japan’s leading shipping firm, Mitsui O.S.K Lines Ltd, (MOL) announced that it would be laying-up some of its largest vessels as the global economic downturn batters the shipping industry. According to news service Bloomberg, MOL may also scrap seven of its capsize ships (which are used for transporting iron ore and coal) from a fleet of 100 such ships. 

Just in October this year, MOL had expected a pretax recurring profit of USD 2.7 billion in the year to March 2010. This is down 17 per cent from this business year, reports Reuters. With the automotive industry facing one of its worse ever crises, MOL is likely to be further hit. 

Besides its fleet of Bulkers, Tankers, LNG Carriers and Container ships MOL is one of the leading operators of Car Carriers and with this heavily engaged in the global Ro/Ro - Markets. The company was one of the first in Japan to launch a ship exclusively designed to transport cars. 

The Tokyo-headquartered MOL was one of the first to launch Japan's first ship designed to transport cars. Initially, it was launched solely to handle Japanese auto exports to the world. Today, MOL's car carrier division serves automobile manufacturers all over the world. The cargo MOL transports includes everything from cars to construction machinery. 

It was in 1965 when MOL launched the first pure car carrier (PCC) to meet the needs of Japan's burgeoning automobile export trade. At that time, the PCCs had a capacity to carry 1200 automobiles. Today, MOL’s vessels can accommodate all types of vehicles, and can carry up to 6400 standard passenger cars at once. These vessels are designated pure car and truck carriers or PCTC. In recent years, MOL has seen a shift from a Japan-centered model to a more global one as car manufacturers expanded their production overseas.

“MOL utilizes its 40 years of car carrier know-how and experience to develop comprehensive car carrier operations. For example, in China, we offer domestic inland transportation and coastal PCTC service through joint ventures with local companies,” says the company.

In the late 90's, MOL's car carrier division acquired the ISO 9002 quality certification. This covered MOL's operations at its headquarters as well as at its subsidiaries in Japan, Europe and the United States. By 2000, the company had received the ISO 9001 certification for the rest of its operations.

Today, the company is looking for a bay in the Philippines where it can station the ships and remove their crews. Mothballing, or laying-up, vessels normally takes them out of action for months or years and is a longer-term commitment than putting down anchor and waiting for rents to advance, according to Bloomberg. However, the news agency reports that MOL will increase its iron-ore carriers to 160 by the end of March 2014, including panamax and capsize ships, from 125 at the end of March.

A couple of years ago, MOL’s car carrier division launched a monthly service of its Four Continents Express Service to Puerto Cabello, Venezuela. The idea being to beef up the company's existing South American coverage. The Four Continents Express Service uses four dedicated pure car and truck carriers (PCTC) which can carry all kinds of rolling equipment including high/heavy and earthmoving machines. In 2004 MOL launched a fleet expansion program with more than 20 PCTCs to be delivered until 2009.

MOL is known for introducing green initiatives – for example, a few years back the company launched a nature-based purification technology that cut exhaust emissions from ships in port. The system uses oil extracted from timber thinned during forest maintenance which is already used as a biomass fuel in Japan. The fuel was developed jointly by MOL group company M.O Ship Management Co and the Hiroshima-based K.K Juon. The tree oil is sprayed into the ship's exhaust pipe, which allows more particulates to stick to the filter. This spray oil injection system for the main engine cylinders reduces particulate emissions by nearly 30 per cent. MOL says the purification system also helps in reducing damage caused by exhaust emissions to the paintwork on cars while they are being loaded and unloaded.

The MOL PCTC, Utopia Ace won the Ship of the Year Award sponsored by Anglo Eastern, during the Lloyd's List Maritime Awards 2004 in Hong Kong. The ship features advanced technologies to reduce wind resistance by 8 per cent and energy efficiency features reduce CO2 emissions by around 14 per cent. Furthermore the advanced technologies lower the risk of oil spills.

For MOL, it is imperative as one of the world’s largest shipping companies to keep introducing new technologies to improve cost situation in the car carrier business. The company, which started operations way back in 1878, operates a total of 646 vessels which include container-ships to tankers, LNG to various types of specialized vessels including PCCs and PCTCs.

MOL's advanced logistics network covers Asia, Russia, Africa, South America, Australia, and New Zealand, with links to key east-west routes. In all, it serves about 40 routes all over the world. MOL owns eight container terminals in Japan and other key ports around the world such as Tokyo, Yokohama, Osaka, Kobe, Los Angeles, Oakland, Seattle, and Bangkok. MOL has used IT to improve its customer offerings - its StarNet -System can be customized to different customer needs and the company is developing a customized interface with its warehouse management system.

Other firsts for MOL include the fact that the company opened car compounds in Melbourne and Brisbane in the early 90s. This helped provide comprehensive logistics support for car imports - everything from inventory control, off-loading, washing of vehicles to the installation of audio and other systems, can be handled at these compounds. This reduced costs for consumers and also minimized the risk of damage by eliminating the need to transport cars by trucks to inland processing centers.

Today, MOL faces one of its toughest challenges as the global financial meltdown hits all industries.

Automotive Industries spoke to Rudolf Luttmann, general manager of Mitsui O.S.K Bulk Shipping.

AI: How badly hit will your car carrier division be with the current economic slowdown? 

From a period with overheated demand and tight tonnage we have experience an economic slump in just three months and the speed is very dramatic. It is very challenging to adjust to the new situation as decisions in shipping are rather long term.

The question is whether we have seen the full dimension of the crisis already? Are we at the bottom line? Or is there more to come and is it going to get even worse next year. Because of this banks are holding back their money, investments are postponed, factories are closed and potential buyers are hesitant to make a decision. 

The market has almost come to a complete stand still.

As vehicle production could not be adjusted on such short notice we are now looking at huge inventories in the ports and terminals. Factories are now closed for the Christmas Holidays and for most of January, which will reduce this stock to a certain degree. In some markets we have a three months supply. Currently there is no planning possible because nobody can give us any reliable forecast for 2009, which would allow us to make adjustments on a mid term basis. The expectation reaches from 10 to 25 percent less volume and a from a market recovery in second half of 2009 to a recovery in 2011.

For us this means that the first quarter will be extremely quiet and we have no other option than reducing the supply side as well. Unfortunately there is not much alternatives what to do with a specialized Car/Truck Carrier other than shipping cars.
We can only react to these developments. It is rather difficult to make decisions on this basis as we have to keep the services running and nobody wants to miss market opportunities.

AI: How is MOL planning to deal with this unprecedented crisis in the automotive and transport industries?

On the supply side we are looking at all possibilities to make short term adjust to the market requirements. This reaches from optimizing voyages, scrapping of old tonnage, idling or temporary layup of vessels to reviewing the new building program.

But as the long term expectation for the industry is quite positive we will continue our growth policy.

At the same time this is now the time to look into newly developing markets and trades where we could not participate in the past because of tight tonnage. There are some interesting areas we are looking at now.

AI: Is MOL planning to put a freeze on the acquisition of PCCs and PCTCs?

In line with the Automotive Industry we may delay and postpone some of the investments but question remains unanswered, what is the long term outlook for the industry.

If you invest into a Pure Car/Truck Carrier this is an investment for something around 30 years. And you need to renew your fleet constantly in order to provide best service to your customers. In the Shipping Industry you really need long term view and you can not sacrifice your commitments to customers because of a short term market slump.

AI: What are some of the efforts being made by the shipping industry to tackle the downturn?

Whatever we do, scrapping, layup and slow down, all is extremely expensive and we do not get any compensation from our customers. In addition to these costs with the exit of older vessels the average age of our fleet goes down. This is good for quality and handling of cargo.

But at the same time our fleet costs go up drastically. Reason for this are the very high new building prices, increasing financial costs, crew, maintenance, operating costs and increasing environmental obligations. We got some relieve of the bunker costs but how long will this continue?

It will be quite a challenge to get this reflected in the freight rates.

AI: Do you see this time as a challenge where the out-of-the-box solutions are required? If so, what kind of solutions would you recommend?

This industry requires stable on time delivery of valuable goods resp. of high quality vehicles. Adhoc activities and hectic actions do not really solve the problem and may create problems in the future. You have to find solutions together with your customer in a partnership approach.

AI: There have been reports of automobiles being stranded at ports as car manufacturers face a sharp decrease in sales – has MOL experienced any such issue?

Some markets have slowed down very drastically and we all have been surprised by this. I would not call it stranded but definitely inventories have gone up as sales have almost stopped. But as soon as the market recovers these cars will be carried to their destination. We do hope that this will happen rather soon.


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