The global shipping business, like many other industries, is greatly affected by trends in the global economic cycle, and is thus subject to both macroeconomic risk, as well as business risk associated with trends in specific industries. There are a multitude of factors that are subject to change, such as fluctuations in the economies of individual countries, changes in trade structures, vessel supply-demand balance, market conditions and cargo volumes. Achieving the best performance hinges on objectively analyzing information so as to continually increase the probability of generating higher earnings. With this in mind, MOL has adopted a strategy of "diversifying operations to reduce risk” and "raising highly stable profits" by aligning its fleet to match international marine transport demand in the transport of both raw materials and finished goods. In this way, we strive to maximize returns and sustain profit growth.
In accordance with our internal market risk management regulations, we appropriately reduce risks related to fluctuation, especially those arising from freight rates, bunker prices, exchange rates, and interest rates. The Investment and Finance Committee also identifies, analyzes and evaluates risks related to such material issues as investment in ships.

Diversifying Operations to Reduce Risk

MOL operates a "full-line marine transport group." As of the end of March 2018, we operated around 860 vessels, ranging from dry bulkers, tankers, and LNG carriers to car carriers and containerships, capable of transporting a diverse range of raw materials and finished goods. Each type of ship and each type of cargo have particular supply and demand trends, and create particular markets. While some of these markets are highly correlated with each other, others are negatively correlated depending mainly on the economic environment, so the impact in one sector offsets the impact in another. By assessing the suitability of a particular vessel type for medium- to long-term contracts and market exposure the Company expects, MOL constructs an optimum business portfolio, which allows the Company to pursue higher profits while mitigating risks.

Building up Highly Stable Profits Through the Use of Medium- and Long-Term Contracts and Other Means

The market price of bunker is generally linked to the price of crude oil, and any increase in bunker prices has a negative impact on earnings for the MOL Group. In fiscal 2018, MOL projects buying 3.9 million tons of fuel on a standalone and consolidated subsidiary basis, of which the Company is able to pass on about 80% of the risk to customers.
In addition, an increase of US$1 per metric ton in the average annual price of bunker would lower earnings, including from equity-method affiliates, by approximately ¥0.18 billion (net of hedging) at the maximum. A stricter regulatory rule to reduce SOx emissions generated by ships will be introduced in 2020. This regulation would require the use of low-sulfur fuel oil containing less than 0.5% sulfur, the installation of SOx scrubbers on vessels to remove sulfur, or the use of alternative fuels such as LNG, LPG, and methanol, which could have an impact on fuel costs or capital costs. In this case, the Company intends to put in effort to gain the understanding of customers and reflect these additional costs in freight rates and other fees.