After 'teething problems,' ONE expects to lose $600M in its first year

Dive Brief:

ONE expects to lose $600 million in its first fiscal year as underutilization, high bunker fuel prices and start-up difficulties forced the company to adjust its forecast.
Originally, the sixth-largest ocean carrier expected to post $110 million in profit for FY 2018, but it now expects to have booked $1.25 billion less in revenue between April 1, 2018, and March 31, 2019, which led it to adjust its profit down $710 million.
"For the first half of the fiscal year, synergistic effects of the business integration have emerged steadily," ONE wrote in its forecast adjustment notice. "On the other hand, liftings and utilization dropped due to the impact of teething problems immediately after the commencement of services in April of this year."

Dive Insight:

At the end of the day, ocean shipping is still a commodity. Failures in customer service can severely impact future sales — especially for new names.

When ONE launched on April 1, there were rumors its systems were far from ready. And in its latest filing, ONE confirms its start-up problems were a result of a difficult IT systems transition, which led to "inconveniences for customers."

"Booking reception and documentation operations were delayed because ONE staff were not completely familiarized with the newly introduced IT system, and the staff were short-handed," ONE wrote in its disclosure. "Issues such as the staff's skill level and personnel shortages have already been addressed, and their operations have returned to normal."

The carrier writes it sought to "regain lost ground" between July and September, but the "negative impact" from its operational problems earlier that year continued to affect its Asia-North America and Intra-Asia routes (the main service loops provided by the carrier). In addition, the company said it failed to meet its cost-reduction target, which would have offset high bunker fuel prices — in part due to lower utilization, too.

As a joint business operation, ONE's financial struggles affect its parent companies, too. K Line this week adjusted its own operating income forecast down 11 billion yen ($98.1 million), due in part to the impact from ONE. The carrier now expects a loss of 28.5 billion yen ($254. 2 million).

ONE, however, maintains it has brought more synergies than losses to its three parent companies — K Line, MOL and NYK Line. "The synergistic effects for the initial year turned out to be higher than the initial outlook," ONE wrote.