Record Cars to China Boost Wilhelmsen as Japan Rebounds: Freight

Record car shipments to China and a rebound in cargoes from Japanese automotive companies recovering from last year’s tsunami will mean the most profit ever for Wilh. Wilhelmsen ASA, the world’s largest vehicle transporter.

European sales to China rose 42 percent to an average of 53,500 vehicles a month this year, according to data from China Automotive Information Net, a government researcher. Shares of Lysaker, Norway-based Wilhelmsen, with 23 percent of the global fleet, will rise 31 percent in the next 12 months, the average of seven analyst estimates compiled by Bloomberg shows.

While the company is handling more cargo to Asia, it’s also earning more because it has more cars to bring back from the region. Japanese exports to the U.S., the industry’s biggest trade route, rose 25 percent in June after companies from Toyota Motor Corp. to Honda (7267) Motor Co. reopened factories, Japan Automobile Manufacturers Association data show. Wilhelmsen is also carrying more construction and mining machinery, according to Chief Executive Officer Jan Eyvin Wang.

“We have trades emerging that weren’t there before,” said Anders Karlsen, the analyst at Nordea Securities in Oslo whose recommendations on the shares of shipping companies returned 31 percent in the past year. “That’s filling up Wilhelmsen’s ships more and helping its profit.”

Asian Cargoes

Wilhelmsen vessels earned $67 a cubic meter (35 cubic feet) of cargo in the second quarter, little changed from a year earlier, according to RS Platou Markets AS. Rates were last higher in the first three months of 2009, when the ships earned $69, the Oslo-based investment bank estimates. More cargoes to and from Asia mean the ships are less likely to sail empty on either leg of the journey, boosting revenue.

The company’s net income will reach $316.8 million this year, from $143 million in 2011, according to the mean of 10 analyst estimates compiled by Bloomberg. Profit is predicted to keep advancing for at least another two years. The shares, which jumped 64 percent to 47 kroner in Oslo trading this year, will advance to 61.4 kroner in 12 months, the estimates show.

China’s appetite for European cars is growing after the nation’s gross domestic product expanded more than fivefold in a decade, making it the second-largest economy. Deliveries of passenger vehicles may rise 11 percent to 16.09 million units this year, with sales accelerating in the second half, the China Association of Automobile Manufacturers predicted July 26. The country is the world’s biggest vehicle market.

Global Trade

While China’s car imports are likely to provide the largest boost to global trade in vehicles this year, automakers are already shifting manufacturing to the fastest-growing regions, said Kevin Tynan, an automotive analyst for Bloomberg Industries in New York.

Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, Ford Motor Co. and Volkswagen AG are among automakers that said this year they will add capacity and new factories in China.

Demand may weaken after the Chinese economy slowed for six consecutive quarters. The International Monetary Fund cut its 2013 world growth forecast to 3.9 percent on July 16, from an April projection of 4.1 percent, citing Europe’s debt crisis. Global vehicle sales contracted 5.9 percent in 2008 amid the worldwide recession, recovering just 0.9 percent the following year, data compiled by Bloomberg Industries show.

Japan Automobiles

Japan, the largest car exporter, shipped 6.2 percent fewer vehicles to Europe in June, data from the Japanese association show. Deliveries to all destinations rose 7.2 percent, reflecting a recovery from a collapse in output after the magnitude-9 earthquake and subsequent tsunami that struck the country March 11, 2011. Shipments are still 7.4 percent below the four-year average.

Toyota (7203), based in Toyota City, Japan, said Aug. 3 it expects sales to increase 23 percent to a record 9.76 million units this year, from a previous prediction of 9.58 million. Honda, located in Tokyo, reiterated July 31 it expects to sell a record 4.3 million vehicles in its current fiscal year.

Slower global growth is already reducing earnings for other merchant ships. Rates for very large crude carriers, holding 2 million barrels, declined 70 percent this year, according to Clarkson Plc (CKN), the biggest shipbroker. Earnings for Capesizes, hauling iron ore and coal, fell 84 percent, London-based Baltic Exchange data show. Both earn less than running costs, accountant Moore Stephens International estimates.

Vessel Classes

Both vessel classes are suffering because of a glut of capacity. Car carriers are profitable partly because owners scrapped ships when seaborne trade in vehicles dropped 40 percent in 2009. The fleet contracted by about 7 percent to 646 vessels, Clarkson data show.

Wilhelmsen, which operates 141 carriers, took advantage of the slump to hire other companies’ vessels on long-term charters, CEO Wang said by phone Aug. 8. As well as owning the ships, it also operates others through joint-venture partnerships. The bigger fleet is now boosting profit after rates rebounded, he said.

The cost of chartering in a ship for a year fell as low as $12,000 a day in 2009 and is now at about $25,000, according to Platou, which anticipates $28,000 in 2013. The carriers need about $10,500 to cover running costs, excluding fuel, and pay interest on debt, the bank estimates.

Nippon Yusen K.K. (9101), based in Tokyo, operates 121 car carriers, representing about 3.5 percent of its total capacity, according to data on its website. Mitsui O.S.K. Lines Ltd., also located in the Japanese capital, has 72 carriers in a fleet of 512 vessels, Clarkson data show.

Mining Machinery

The vessels are also in demand because of gains in exports of construction and mining machinery, which generate about 70 percent of Wilhelmsen’s profit, according to Pareto Securities AS in Oslo. Caterpillar Inc. (CAT), the world’s largest maker of what the shipping industry calls high-and-heavy loads, will report record sales of $68.8 billion this year, according to the mean of 16 analyst estimates compiled by Bloomberg.

The outlook for car carriers is attracting the interest of John Fredriksen, the world’s wealthiest ship owner, with assets of at least $12.7 billion, according to the Bloomberg Rich List. Frontline 2012, a shipping company he formed in December, may order car carriers as part of its strategy to build vessels with more efficient engines, according to Tor Olav Troeim, an adviser to Fredriksen in London. Shipping companies are seeking to reduce fuel costs after so-called bunker prices neared a record last year.

More Cargo

Wilhelmsen also plans to improve the fuel efficiency of its fleet, with an anticipated daily saving of about $3,300 at current prices, Wang said. The new ships will also be wider, allowing them to carry more cargo, because of the broadening of the Panama Canal. The $5.25 billion expansion of the waterway between the Atlantic and Pacific oceans is scheduled to be completed in late 2014.

Demand for the vessels will increase by 7 percent to 8 percent this year, exceeding fleet growth of 5 percent, according to DVB Bank SE, a transportation lender. Global car sales rose to 6.5 million units in June, the highest for the month since at least 2009, according to Bloomberg Industries data.

“They are filling up the ships both ways: from Asia into Europe and back again,” said Frode Moerkedal, an analyst at Platou Markets in Oslo whose share recommendations returned 15 percent in the past year. “Demand for car-carrier services is higher than supply growth.”

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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