22 Jeremy Nixon, Ocean Network Express
The company formed from Japan’s three major container lines has made a turnaround from its rocky start. But challenges remain for Jeremy Nixon and ONE as trade slows
The chief executive is keeping a close eye on costs as the carrier heads towards its first annual profit
JEREMY Nixon is probably the only person in container shipping who can honestly say this year was better than last year.
That is not because of any ability to beat a moribund market, but because last year was one to forget.
The launch of Ocean Network Express, formed out of the container line operations of the three major Japanese shipping companies, did not go smoothly.
There were “teething issues” with staffing that meant the carrier struggled to accept early bookings and most of last year was spent playing catch-up.
This time last year, Mr Nixon was warning of a $600m loss, which it eventually reported as $586m.
Fast-forward one year and Mr Nixon can report being on target for a $60m profit. The company’s turnaround story won it an award for Excellence in Container Shipping at the Lloyd’s List Asia Pacific Awards earlier this year.
Still, it is not all plain sailing. Revenues for the carrier’s second quarter, ending September 31, were lower than those recorded last year and the profit expectation is down by a third from previous forecasts.
Like all container lines, ONE has had to contend with a slowing global economy, rising trade tensions and a peak season that failed to take off this year.
Earlier this year, Mr Nixon admitted that forecasts of 4% supply-side growth would be matched by 4% demand growth were overoptimistic, but said the company could manage its way through the slowdown.
This has been largely achieved by blanking sailings to match supply to demand.
“It is a natural counter-measure when the trade growth is not as strong as we expect,” Mr Nixon said.
However, after the soft market that characterised the first half of this year, carriers had their hopes pinned on a stronger peak season than that which emerged.
ONE’s liftings improved from the volumes it carried last year, but not significantly. In the first half of the company’s 2018 financial year, it carried just over 2m teu on the Asia-North America and Asia-Europe headhaul trades, with utilisation at 82%.
This year, that figure has increased to close to 2.4m teu and load factors have improved to 90%.
Yet this has come at a time of falling rates, hence the downward revision of this year’s forecast.
Despite its volumes on the transpacific, ONE is less affected by the trade war than some of its rivals, Mr Nixon said.
“The US imports about 70% of its imports from China on the transpacific,” he said.
“As ONE, we’re only about 50%. We have a much larger market involvement in the Southeast Asia trades to the US and, of course, Japan.
“That business is still continuing, and Canada imports are strong, Southeast Asia and Japan imports to the US are still strong.”
Nevertheless, when revenues fall, costs must be constrained. ONE says it is on track with product rationalisations that will save it $195m a year and fuel cost savings of $65m a year.
New services, including a Middle East/India to Africa service and India to Europe service, are targeting growth in emerging markets as developed world economies slow.
When the three Japanese lines merged to form ONE, the hope was for synergies of $1bn a year. ONE says 86% of that figure was achieved in the first year of its operation and 96% would be achieved in the 2019 financial year.
However, further costs are coming its way with the introduction of IMO 2020 from next January.
ONE is already buying low-sulphur fuel and will start bunkering this quarter. Like all container lines, it is expecting its customers to pay for the additional cost of compliant fuel through its ONE Bunker Surcharge.
To date, the company has shied off scrubber installations and opted for low-sulphur fuel as its preferred method for meeting IMO 2020 obligations.
However, it has said it is now investigating scrubbers for use on some of its larger ships to find the most competitive combination, given the current market situation.