NYK president Yasumi Kudo addressed company employees on October 3 at a ceremony in Tokyo marking the 126th anniversary of NYKs founding. An abbreviated version of his speech is provided below.
The Great East Japan Earthquake and Reconstruction Assistance
Six months has passed since the outbreak of the Great East Japan Earthquake. I would like to express my sympathy again to all those affected by the earthquake. I pray for the continued swift recovery of the region and wish to reconfirm the commitment of the NYK Group to extending continued support for the rebuilding of the region.
The fragmentation of the supply chain by the earthquake has had an immense impact not only domestically here in Japan but also on the global economy. Our shipping and logistics businesses are intimately interrelated global economic activity. It is therefore necessary to once again reaffirm our commitment to the corporate social responsibility that we as a company have.
Business Environment and Performance of NYK Group
In the aftermath of the earthquake, the Japanese economy experienced a sharp downturn. Then the economy appears to be well on its way to recovery, but given the continued strength of the yen ever since the U.S. dollar dropped to around the 70 yen mark, this recovery remains somewhat tenuous.
The risk of economic decline outside Japan is also growing. The U.S. economy is growing at a sluggish pace, and to make matters worse, there is concern about the impact of the downgrade of U.S. government bonds. In Europe also, economic recovery has reached a plateau with fiscal and monetary disquietude in the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) nations expected to be prolonged. Even in the emerging economies that have demonstrated solid uninterrupted growth, the effects of the slowing pace of the global economy are being felt one way or another.
The extremely strong yen and surge in bunker fuel prices are only serving to add insult to injury; the situation is thus extremely grim to say the least. The vessels that feature most prominently in this gap between demand and supply include containerships, VLCCs, and Capesize bulk carriers primarily transporting iron ore and coal.
Moreover, the car exports sector, which has been most seriously impacted by the earthquake, plunged into decline in the first quarter, causing NYKs consolidated results for the first half of the 2011 fiscal year to show a decrease in revenue compared to the same period last year. And it is with deep regret that I had to report a deficit.
On the other hand, it is welcome news that demand for the transport of finished cars has steadily been recovering since the second quarter, and the companys operations in the non-shipping sector encompassing logistics, terminals have steadily been profitable. Although the second half presents a challenging environment, let us work together as a unified group to secure an operating surplus for the entire financial year.
Direction for Future Undertakings of the NYK Group
Let us now reexamine the business environment in which the NYK Group finds itself. When you view the Lehman Shock in the context of the logistics industry, one could argue that it was an event that ended the somewhat abnormal excessive consumption in the U.S. and parts of Europe and pivoted commodity volumes back to a normal level. In view of this, it is inconceivable that future intensification in container cargo movement from Asia to Europe and the U.S. will ever realize the same double-digit growth of the past. The NYK Research Group predicts growth in this segment of roughly 6 percent, and even on a global scale taking into account the strong cargo movement in the intra-Asian region, the growth estimate is roughly 7 percent.
Meanwhile, the abrupt acceleration in the speed of imports of iron ore and other resources to China up until 2008 surpassed our expectations on a grand scale. As a consequence, supply was utterly unable to catch up, and the period between 2003 and 2008 saw an unprecedented and quite abnormal soaring market. While supply has now completely caught up with demand, the rate of expansive growth of imports to China has now started to decelerate.
The fortunate days of differentiation based solely on having vessels in ones possession to deal with unexpected increase in both the volume and cycle of cargo movement are long gone. Despite over-heated demand has been cooled down, the new vessels will continue to be built for some time, which caused by the time-lag between order and delivery. How are we to survive in this situation?
The new medium-term management plan, More Than Shipping 2013 (MTS2013), launched in April this year, is our only answer. More Than Shipping implies a shipping with Value-Added strategy, but more specifically, this is a survival strategy that will enable differentiation in the areas of value-added services beyond traditional shipping and vessels equipped with advanced safety, operation, and maneuvering.
Global Logistics Business
The global logistics business, which chiefly concerns the transport of consumer products, there is no question that the demand for transport of this nature will increase in accordance with the rise in population. The global movement in containers is thus anticipated to increase by roughly 7 percent as described earlier.
On the other hand, the building of new containerships is expected to increase on an annual scale by a substantial 10 percent until around 2013. It is subsequently easy to predict that the market will deteriorate given this gap between demand and supply, which means that the question of how to overcome this issue will be the greatest challenge that we face.
The NYK Group shall not endeavor to compete with other shipping companies on the basis of containership fleet size, but rather will stay ahead by focusing on cargo collection capacity and volumes. With the clear excesses of space on vessels and the anticipated development of even more energy-efficient vessels at some point in the near future, there is no current need to construct ships. Rather, at this point in time, we shall continue to implement our light-asset strategy whereby we charter vessels and space when required.
On that basis, the larger issue at hand then is how to approach the strengthening of our sales capability. The answer to this lies not in vessels for which differentiation in service is difficult to achieve, but more precisely, in the promotion of our onshore segment of contract logistics and the like, which can be differentiated. However, in this sector also, the mere possession of warehouses and trucks is plainly not all that is required. Our human ability of imagination and ingenuity will be truly indispensable in addressing the question of how to most effectively take advantage of these assets and maintain cost competitiveness without generating Muda, Mura, and Muri (wasteful practices, inconsistencies, unreasonable requirements)
To this end, we must collaborate with the contract logistics arm of Yusen Logistics Co. Ltd. and actively pursue further reform and cultivate personnel. Furthermore, having ensured that the integrated merits of the comprehensive services offered by Yusen Logistics including air and ocean forwarding and contract logistics are maximized to the greatest possible extent, there is a pressing need to further enhance customer contact and expand operations in all segments, especially in the arena of non-vessel operating common carriers (NVOCCs).
Bulk Shipping Business
The bulk shipping business, the car carrier sector, which was deeply impacted in the immediate aftermath of the earthquake, is expected to produce more transport demand in the second half in order to make up for decreased production in the first half. Please take care to ensure the more efficient allocation of vessels and operation, which will enable implementation of the desired shipping plans of clients. Given the increasingly upward trend of foreign production geared toward emerging markets, I also request that you push ahead with the upgrade of our shipping and non-shipping sector, including RORO terminals and our land transport network.
On that note, regardless of having just mentioned RORO vessels, the transport of immobile oversized static cargo1 is also one of our areas of speciality. I therefore ask that you also endeavor to actively collaborate with NYK Hinode Line Ltd., one of Japans major companies in terms of heavy cargo transport, and expand the base of plant and project cargo that we manage.
The dry-bulk sector, the excess in supply of shipping, which is outstripping growth of cargo movement, is expected to continue until at least 2013. Obviously, we need to fast track the moderation of the scale of our fleet on spot market, which is susceptible to market conditions, namely focusing on Capesize and Panamax class vessels; however, in any case the most urgent task at hand is the strengthening of our sales efforts to expand our clients outside Japan. The way to differentiate the NYK Group is to strengthen our sales capability, cost competitiveness, and powers of proposal, which are now being called into play.
Fortunately, we have both a liner network that has been in operation for over 100 years and that expands across the globe, as well as the worlds greatest fleet at our disposal. As long as we maximize economies of scale and thoroughly instigate cost-reduction initiatives through sales efforts targeting the minimization of ballast legs2, while simultaneously implementing meticulously persistent slow-steaming operations, we are bound to return to a path of growth. Having said that, it is a fact that our shipments to the Atlantic and booming Asian markets got off to a slow start, so this time around it is imperative that we ensure we are close to our customers.
The liquid commodities sector, while tanker segment faces the same situation as dry-bulk segment with an excess in supply of tonnage predicted to persist for some time, demand in emerging markets, namely in Asia, will without a doubt escalate. I therefore ask that you continue to strengthen our sales efforts in this region. Meanwhile, the development of our LNG and offshore businesses will be key from hereon. Due to the impact of the nuclear accident after the earthquake, generated-energy portfolios in Japan and all over the world are being reassessed, among which LNG has emerged and is attracting attention. In the same way as dry bulk, it is vital that we receptively tap into the needs of our clients.
2Ballast leg: a voyage without cargo on board to deliver a vessel to the next loading port or to a dry dock.
Technology, Safety, Environment Issues
The MTS2013 management plan proposes the expansion of natural resources and energy transport based on the technology and safety of the NYK Group. This calls for proper technology to ensure safe operations as well as more advanced navigational technology in our offshore business, which forms one of our strategies for differentiation.
Also, although the surge in bunker fuel prices, together with environmental measures to deal with CO2, SOx, and NOx emissions and contaminated ballast water are serious and crucial issues, let us take up the challenge to differentiate ourselves based on our technological capabilities and deal with these issues in a proactive manner.
More specifically, the technology for the likes of LNG fuel vessels will offer the capacity to both improve the cost competitiveness of the NYK Group and contribute to global environmental protection. Let us therefore set out to make a quick transition from the speculative stage to the stage of implementation. Furthermore, you will all be aware that from an energy-saving and cost-reduction perspective, slow-steaming operations present the greatest quick fix, but this is largely contingent on the existence of a close partnership between operation staff and vessels, in conjunction with the steady dedication and painstaking attention to detail of everyone concerned.
The implementation of the strategies outlined in the MTS2013 management plan require a support mechanism, which is the great responsibility carried by our corporate department. Through the investment, financial, and budget management activities within a companywide framework, the corporate sector is required to analyze each respective business division and mastermind the most suitable and desirable portfolio that takes into account all group businesses.
Furthermore, with the acceleration of worldwide development, allocating management resources, namely capital and personnel, from a global perspective presents a challenge. Compliance is also an extremely important management issue to the NYK Group. It comes near to stating the obvious, but there are serious consequences associated with antitrust and competition laws, and regulations on controlling corrupt practices involving foreign officials are recently being intensified across the globe. Penalties for compliance violations are immense and have the potential to shake the very foundations of a corporation, so I implore you to bear this in mind when engaging in your work. On that note, as I just mentioned, corporate affairs are extremely important; however, I am sure you all sufficiently recognize that this does not mean the issue of cost can simply be ignored. At the end of the day, the cost is also a component that influences the cost competitiveness of the entire NYK Group. I therefore request that you endeavour to avoid Muda, Mura, and Muri and make a conscious effort to pursue efficiency in your work.
The Human Ability for Each Individual
The business environment in which the NYK Group presently finds itself is extremely inhospitable; however, logistics demand in the global economy will without doubt steadily rise to become a growth industry. On the flip side, how can we work through the problem of there being little leeway for differentiation in terms of equipment and facilities and instead draw on the creation of a mechanism that we can rely on to secure continuous revenue?
The only answer to this lies in ensuring the prompt ascertainment of correct information and executing speedy decision-making prowess, while simultaneously implementing the More Than Shipping strategy of offering value-added services. The support mechanism behind this is first and foremost, the human ability that is unique to each and every individual. Let us tap into the integrity, innovation, and intensity of all group employees and work together as a team.
Please let me conclude this speech by offering my sincere wishes for the continuing health and prosperity of your families.