Tonnage Titans – 3. Mitsui OSK Lines

Junichiro Ikeda.

Junichiro Ikeda. Credit: MOL

The largest shipowner in Japan, with 28,572,509 gt in service and on order, according to IHS Markit data, Mitsui OSK Lines has two clear criteria when it comes to ordering additional tonnage.

“There should usually be a long-term contract attached or a clear need for replacement,” Junichiro Ikeda, president of the Tokyo-headquartered group, told Fairplay in a recent interview.

The 134-year-old group has a foothold in virtually every shipping sector and is well known for enjoying strong relationship with the leading Japanese utilities and other cargo owners that it uses as the basis for ordering new ships, with Ikeda stressing that “our customers is not just in Japan but all around the world”.

With its container operations for much of its history being the cornerstone of its business, following the creation of Ocean Network Express (ONE), which saw MOL, along with fellow Japanese owners NYK and “K” Line merge their box operations, liquefied natural gas (LNG) has become a dominant focus for the group. It is an area where the group has a competitive edge, Ikeda said.

MOL is the largest owner of gas carriers at 7,357,095 gt, according to IHS Markit data. It operates a fleet of about 100 carriers, most of which are on long-term contracts, Ikeda told Fairplay, but he acknowledged that “the LNG market is preferring short-term contracts”.

“A long-term contract is desirable but if the needs of a customer changes, we need to proactively support this. The cost of building LNG carriers is very expensive so if we only went for a short-term contract that would pose a big risk to the business.

“Many of our LNG carriers are on long-term contracts, but once these contracts are over and we have accounted for the depreciation of the asset, we can offer these for vessels for short-term contracts,” Ikeda said.

The group’s prowess in gas extends beyond the transportation services of LNG. It is the first Asian player to have made a foray into floating storage and regasification units (FSRUs) and the group is active in exploring the potential of LNG bunkering.

A dominant player is dry bulk – its total capacity is 6,906,390 gt – the group has a leading position in Capesize tonnage and is a significant owner of medium- and small-size bulkers, the market turmoil faced by the sector forced the Japanese group to review these operations in 2016.

“The cargoes were no longer there for the number of ships we had, so we decided to restructure our business. We solidified the cargos contracts and then sought to achieve the necessary fleet capacity to accommodate these cargoes. That was the policy and that remains true today,” Ikeda told Fairplay.

“As a company, we agreed that we would charge a 20% premium on top of average freight so that we will enjoy a very bright future.”

MOL is also a significant tanker owner, with a fleet of about 30 very large crude carriers, with a majority of these on long-term contracts. “Our performance will not correlate completely with market volatility that may occur,” Ikeda added.

However, Japan’s shrinking population and the effect this could have on domestic oil consumption and future demand for petroleum products is a concern for the group.

Another area in which Ikeda said the group enjoys a competitive edge lies in chemical tankers. Among the top five owners in terms of chemical tanker fleet size, he said the group was proud to be Asia’s top player in this segment.

While declining to be drawn on whether he believes there will be more consolidation in this sector, Ikeda pointed to the strength of European companies in this space. “There are a limited number of players in chemical tankers as it involves the carriage of many different types of products, including some that are hazardous. A high-level of know-how is required. This means the barriers to entry into this sector are high,” he said.