Kaiji Press News 14/May/2015 (Thu)

K Line turns heavy lifter unit SAL into the black (1)

Toshiyuki Suzuki

SAL to consider enhancing fleet with newbuildings

SAL Heavy Lift GmbH, a German heavy lifter subsidiary of Kawasaki Kisen Kaisha (K

Line), moved back into the black in fiscal 2014 (ending March 2015) for the first time in five

years since fiscal 2009. The comeback came as SAL ramped up cost-reduction efforts

such as slow steaming of its fleet and refinancing of borrowings. Lower fuel costs and a

weaker euro as well as a market recovery also provided the firm with tailwinds. Given good

prospects for an improvement in its balance sheet, SAL is planning to begin to consider

enhancing its fleet with newbuildings for the first time since 2011, and set the basic

direction within 2015.

In a recent interview with Kaiji Press (KP), Toshiyuki Suzuki, senior managing executive

officer of K Line who concurrently serves as CEO of SAL from 2013, talked about the

current state of its heavy lifter business and its future prospect.

KP: SAL had remained in a tough time due to a slump in the heavy lifter market in the

aftermath of the Lehman shock in 2008.

Suzuki: I assumed the post of CEO at SAL in July 2013. Jiro Asakura, former president of K

Line, gave me a mission to turn SAL into the black within two years. In fiscal 2013, the first

year since I became CEO of SAL, SAL moved forward with slow steaming and cost-

reduction efforts such as refinancing of debts aimed at easing interest burdens. In fiscal

2013, we incurred large losses particularly because the market slumped deeply especially

in the second half of that year when the market for project cargoes performed poorly. In

fiscal 2014, the second year since I became CEO, we were able to restore profitability for

the first time in five years since fiscal 2009. While the market began showing signs of

picking up at the beginning of 2014, it was in/after the summer that we began to see our

efforts bearing fruit in our balance sheet. We swung back into the black in the second

quarter (July-September) of fiscal 2014. After that, we booked profits for three consecutive

quarters. So, we were able to regain profitability earlier than projected.

KP: What are main reasons for returning to profitability?

Suzuki: In terms of cost reduction, the effect of slow steaming proved great. Essentially, the

high-speed service of 20 knots was SAL's selling point. However, we sealed off that point

and pursued lower-speed navigations. It was only after 2014 that we fixed futures contracts

to some extent. Large-size heavy lifters fitted with 1,400-2,000-ton cranes were able to

continuously engage in offshore services such as the Ichthys LNG project in Australia, the

North Sea and West Africa. Also, we received a greater number of inquiries for cargoes to

be hauled on the Europe-Middle & Near East/India-Far East route in semi-liner services via

small-size heavy lifters with 500-700-ton cranes. Though it cannot be said that freight rates

themselves have recovered, operational profitability has improved on a rise in cargoes we

handle thanks to efficient ship assignments. Lower bunker prices and a softer euro also

helped improve our profitability.

KP: Tell us about the current state of SAL's fleet/organization.

Suzuki: Currently, we run 17 units, 14 of which are owned ships. The 183-type Lone and

Svenja, both completed in 2011, are equipped with 2,000-ton cranes, the world's largest in

lifting capacity among those for heavy lifters now in service. SAL has an onshore staff of

around 120 in total at its headquarters in Hamburg and overseas hubs. As for marine

workforce, we have about 110 European seafarers, largely Germans, and around 400

Filipino crew members. On top of the Hamburg head office, we have self-managed

organizations in the U.K., the Netherlands, Finland, Russia, Japan, China, Singapore, the

Philippines, the U.S. and Australia. On the back of our agencies in these areas that have

supported us for years, we have established a full-fledged global network.

KP: The heavy lifter business requires specialist techniques and knowhow.

Suzuki: For the operation of heavy lifters, high-level engineering techniques such as the

precise calculation of the ship hull's strength are essential. It is vital to ensure that ballast

water contained in ships with the aim of keeping ships virtually static is stably and surely

moved when cargoes weighing more than several hundreds of tons are loaded/unloaded

onto ships in not a few cases. SAL's forte lies in sophisticated engineering technologies

such as one for accurate calculation of the ship hull's strength and superior ship quality

(hardware), as well as European and Filipino seafarers (software) with high loyalties and

techniques that position us as the top runner among ultra-heavy lifter operators. It is SAL's

pride and motto to not make any compromise in safety care and technological powers. Kaiji Press News 14/May/2015 (Thu)

K Line turns heavy lifter unit SAL into the black (2)

K Line invested in SAL in 2007

KP: What is SAL's future fleet consolidation plan?

Suzuki: We have obtained prospects for an improvement in profitability to some degree as

we moved back into the black in fiscal 2014. So, we intend to begin to look into the

possibility of bolstering our fleet with newbuildings for the first time since 2011, and push

forward with in-house discussions to outline a consolidation plan within 2015. In parallel

with this, we will push work to select shipyards. With regard to construction of heavy lifters,

we perceive that European yards are a bit superior to others in terms of technological

power and credibility. Given the current exchange level of the euro as well, European yards

may be our likely choice.

We have in our mind reinforcement of 1,400-2,000-ton large-size heavy lifters and

replacement of 500-700-ton small-size ones. However, we have no intention to

substantially enlarge the fleet size from the current level. We will basically focus on the

replacement. As to large-size heavy lifters, challenges on the drawing board include

whether we should further enlarge the lifting capacity of cranes from 2,000 tons right now or

equip ships with DPS (dynamic positioning system). Currently, the 2,000-ton-type heavy

lifters are fitted with DP1 or DP2. In late 2012, a DP2-equipped ship was engaged in the

offshore business for the first time ever, and we have since piled up track records in such

offshore business. As we have only one DP2-equipped ship, the deployment of that ship is

a somewhat difficult task, but we need to carefully study cost effectiveness since equipping

ships with DP2 leads to a sharp rise in ship prices.

KP: Main cargoes for heavy lifters are materials/equipment for energy-related plants. How

do you assess the impact of a slide in crude oil prices on transport demand?

Suzuki: Due to faltering crude prices, signs of delays are emerging in new energy/resource-

related projects. But, as far as projects now in place are concerned, most of them are likely

to be completed as planned, and I believe that crude oil prices look unlikely to stay low at

the current level for a protracted period. As circumstances stand now, cargo flow seems to

be softening in Europe. On the Asian side, however, cargo traffic is getting busier in part

because we are engaged in transport of large-size construction materials/machines for

Nghi Son Refinery & Petrochemical project in Vietnam. Further, we are set to deploy one

183-type large-size heavy lifter for the offshore business in Alaska during summer 2015.

So, we will stay busy for a while.

KP: What is the significance of K Line engaging itself in the heavy lifter business? And what

synergies do you expect from collaboration with K Line Group's other segments?

Suzuki: We have forayed into the heavy lifter business as part of efforts to diversify our

business operations. In the K Line Group, such segments as car carriers, containerships

and nearseas vessels are also engaged in hauling heavy/breakbulk cargoes. SAL handles

mainly energy/resource-related cargoes, with its customers overlapped with those of our

group's tanker/gas carrier and offshore support ship segments. In the past, SAL failed to

directly gather cargoes in Japan. However, the establishment of SAL Japan in 2007

enabled SAL to engage in direct marketing activities. As SAL joined the K Line Group, its

degree of market recognition and a sense of trust in it among customers have increased. I

strongly feel that appraisals of SAL among such customers as engineering firms and heavy

machinery makers are rising steadily. I expect more synergies to be generated as the

market appraisal of SAL gets higher.

(Interviewed by Naoki Nakamura and Yoshihito Fukasawa)