Mitsui O.S.K. to Trim Capesize Fleet Up to 18% on Rates

Mitsui O.S.K. Lines Ltd. (9104), operator of the world’s largest merchant fleet, plans to scrap or lay up 10 to 20 of its 110 iron ore and coal carrying vessels as an oversupply of ships has helped drag rates lower.

The line intends to scrap five of the Capesize vessels by the end of March, 2013, and is considering disposal of others, the Tokyo-based company said today in a statement. Taking about 10 ships out of service without keeping their crews on hand for six months to one year “will help restore an appropriate vessel supply-demand balance in the future,” it said.

Mitsui O.S.K., which gets about half its revenue from bulk shipping, is reducing its fleet after a decline in rates caused a 26 billion yen ($327 million) net loss in the year ended March 31, its first deficit since 1995. Nippon Yusen (9101) K.K. and Kawasaki Kisen Kaisha Ltd. (9107), the line’s two biggest Japanese rivals, said today they plan to temporarily remove, or lay up, some Capesize vessels.

“The market situation is very tough, so we will lay up vessels along with the market trend,” Makoto Arai, a Kawasaki line spokesman, said by phone today. He declined to give details on lay up plans and said the line has no plans to scrap any of its 88 Capesize vessels.

Nippon Yusen is also scrapping and laying up ships to reduce costs, spokesman Jiro Tanida said by phone today, declining to say how many vessels are involved. The Tokyo-based company had 112 Capesize ships as of March.

Mitsui O.S.K. rose 1.5 percent to 279 yen at the close in Tokyo. Kawasaki Kisen was unchanged and Nippon Yusen gained 1 percent.

The Baltic Dry Index (BDIY), the benchmark for commodity-carrying rates, has dropped by about 49 percent this year. Iron-ore and coking-coal buyers in China are seeking to defer imports as steel mills in the country reduced output amid lower prices, Mirae Asset Securities Co. said on May 21.

Separately, Kawasaki Kisen agreed to operate several Capesize bulk carriers under a new venture with the dry bulk arm of Singapore-listed Noble Group Ltd., Asia’s largest listed commodities trader.

K Noble Hong Kong Ltd. will start next month and will increase efficiency and cut costs, the Tokyo-based shipping line said in a statement today.

To contact the reporters on this story: Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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