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/resourcerelated 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)