Speech by New NYK President Yasumi Kudo

 Today, I assume the presidency of NYK. On this occasion, allow me to convey to all of you my thoughts at this time of transition.

 

I am very proud to be a part of a logistics business that encompasses sea, land, and air transport. Logistics is an integral part of the lifelines that are essential to the health of the world economy. The stable transport of goods—our very business—enables us to contribute to further enriching lives and economies all over the world. We are indeed privileged to be part of this task.

 

However, at the same time, this places heavy responsibility upon us. Japan, where our NYK Group is based, is devoid of natural resources, leaving the nation with no alternative but to rely on external trade for sustained development. Therefore, logistics is of such immense importance that our country cannot do without it. Moreover, international logistics is a vital piece of infrastructure for the global community. As such, it also has great social significance in the countries where our NYK Group is doing business.

 

It is exactly because of this that we must pay close heed to protecting the environment. 

 

Furthermore, we need to give top priority to safety. Together with all of you, I would like to first reaffirm three words fundamental to the work that we do—responsibility, environment, and safety.

 

Meanwhile, now that the U.S. economic model based on excessive consumption has collapsed, the world economy is in great turmoil, and it is said to be at its most grave in a century. Therefore, recovery will take some time.

 

This world economy is greatly reliant on marine transport and other logistics activities. Moreover, the deterioration of the logistics business is all the more serious because it is additionally exposed to the pressures of inventory adjustment during this phase of economic contraction.

 

On the other hand, from a long-term perspective for the world economy, which is closely related to and dependent on population, the current turmoil is nothing more than a mere phase of adjustment. Therefore, the global economy should be expected to resume an expansionary phase in several years.

 

Accordingly, we should regard the present crisis as an opportunity to revamp our structure and strengthen ourselves in preparation for a further leap forward in the future. That is, now is the time to share with all of you how best to restructure our business portfolio with an eye on the future following this crisis, while at the same time taking emergency countermeasures.

 

In this respect, the current crisis has also made us more aware of strengths and weaknesses inherent in our current strategies, strengths and weaknesses that may not have been all that apparent during more prosperous times.

 

Further developing these strengths and resolving and eliminating the weaknesses will undoubtedly form a basis for our future business portfolio.

 

All of you must have already realized that I am proposing that we forge ahead with the Yosoro (Steady ahead!) Project. Therefore, the most important task I have to initially tackle is thorough implementation of this project.

 

To make a long story short, most of what we have to do under the Yosoro Project has already been mentioned in New Horizon 2010, although a review is necessary. After all, you probably understand that the Yosoro Project represents a campaign to steadily implement New Horizon 2010. I would like to explain this point further by looking back on what we have done so far.

 

The global movement of three major bulk cargoes—iron ore, coal, and grain— doubled from 1 billion tons in 1996 to about 1.9 billion tons in 2007, while the transport volume of completed motor vehicles from Japan also doubled from 3 million units to slightly more than 6 million units during the same period. Global container cargo traffic displayed an even more rapid expansion from 400 million tons to just over 1.2 billion tons.

 

Needless to say, NYK’s respective transport divisions accelerated their fleet expansion to address such rapid cargo growth.

 

However, the bulk/energy transport business learned from bitter experience years earlier and adhered to a stance of attaching prime importance to long-term contracts. The resulting delay in fleet expansion made it impossible for some time to cope with the rapid growth in transport demand. On reflection, this division now appears to think that it has recently expanded its fleet too fast in an attempt to make up for the earlier delay. But this has had only a limited impact on the business of this division.

 

Rather, I consider it significant that the bulk/energy transport division can now reconfirm how important it was to attach priority to stable long-term contracts. 

 

Furthermore, I think that the expansion of long-term contracts with customers in China and India has been a laudable policy from a viewpoint of this division’s prospective growth, considering that these two countries are presently recovering swiftly as expected.

 

The car carrier business, meanwhile, has experienced a sudden change in a perennial space shortage that had lasted for 10 years up until the summer of last year. Today, it is confronted with an abnormal situation in which the transport volume of automobiles has suddenly plunged to half. However, it is fortunate that this division had experienced a similar 50 percent fall in cargo traffic in the past.

 

Whenever shipping space was increased, the car carrier division took into account the possibility of a sharp drop in cargo traffic because there was no short-term car carrier charter market due to the unique ship type. Newbuilding orders have always been limited to such an extent that the fleet can be promptly scaled down, if necessary, by scrapping or tying up vessels that have finished depreciating. Therefore, the car carrier division has been able to react promptly and flexibly to the current crisis as well.

 

Moreover, in the absence of long-term contracts for automobile transport except in limited cases, the car carrier division has never asked customers to accept an increase in freight charges even during the tight supply-demand situation. On the contrary, it has made positive proposals to customers, such as the unification of newbuilding types and a cost reduction through the active use of transshipment ports, making it a primary business policy to build a stable relationship of mutual trust with customers. 

 

Thanks to this policy, there has been little pressure for a freight rate cut from customers during this current crisis. Henceforth, the car carrier division should never modify its business stance on fleet improvement and positive proposals to customers.

 

Now for the container transport business. Much to our regret, we have had to acknowledge anew that once supply-demand balance is disrupted in this division, there is no limit to the fall in freight rates, thus forcing us into a huge deficit. Although some shipping firms operate independently and others through consortiums, sailing frequency and other containership services are basically identical. 

 

Moreover, when viewed from the perspective of hardware, shipyards are limited, while seafarers are supplied from the same sources. Accordingly, there is little difference in ship prices.

 

This notwithstanding, no long-term contracts are concluded. 

 

It is no wonder, therefore, that freight rates fall sharply when a supply-demand gap widens. In fact, this is what we have experienced many times in the past.

 

Nevertheless, all shipping firms, forgetting this bitter experience, expanded their containership fleets out of a sheer desire to cope with a rapid increase in cargo traffic and the resulting tight space supply situation. Regrettably, our company was no exception.

 

The result was clear. Shipping firms suffered a serious dual damage—a steep drop in freight rates and a massive volume of idle space.

 

Then, should we withdraw from the containership business? Naturally, the answer is No.

 

Container transport offers us a growth market in which cargo traffic is bound to increase. Moreover, we should never give up providing containership service for the sake of our customers requiring our service. Besides, the supply-demand gap will disappear sooner or later because newbuilding orders have come to a complete halt due to the present abnormal situation and also because the scrapping of old containerships will gather added momentum.

 

In the meantime, we need to resolutely turn the steering wheel in order to switch from the past business model of giving top priority to investment in fleet expansion—the very cause of a huge deficit—to a new sustainable business model. Now is the time for such transformation.

 

Vessels can serve as an important tool for cost reduction through innovation and ingenuity—for instance, by means of their efficient deployment. However, it is indispensable to slim down our fleet as much as possible from the standpoint that the possession of an excessively large fleet will end up pushing up cost.

 

We should strive to charter vessels from other firms without hesitation if and when we have to make up for shortage in our space supply, and thereby turn our ship expenses into a variable cost. At any rate, the container transport business was far from having an awareness of the need to ensure an appropriate return on a huge investment in full consideration of capital cost.

 

An even more important challenge is to strengthen our business capacity to convince customers to choose the NYK Group when they are offered freight rates and services of the same level by a number of other companies.

 

Simply put, a strong business capacity is the ability to solve our customers’ problems. In this context, we must be fully aware that for customers, transport by containership is already a mere part of their entire activity, that they can secure services of equal quality at any time, and that their problems, if any, are mostly related to warehousing and overland transport in various parts of the world.

 

To cope with such needs of our customers, we have all along pushed ahead with comprehensive logistics as the most important strategy.

 

However, merely starting a logistics business cannot solve problems. Quality and cost of services are more important. Logistics represents a highly labor-intensive activity although the efficient operation of related hardware is also important. It is a very difficult undertaking; the innovation and ingenuity required for equalizing operations throughout the year, as well as kaizen activities and efforts to improve on-site work and capability, spell no small difference in cost.

 

Yet our logistics business has also been forced into a difficult business situation at present because it is somewhat affected by the excessive possession of hardware, as well as a deficiency in kaizen activities and on-site capabilities. Besides, its cooperation with the containership division still leaves something to be desired. This runs counter to our policy of developing logistics primarily as a means of reinforcing the business of containerships.

 

Earlier, we reached the conclusion that if the different sectors of our hardware—containerships, trucks, and warehouses—continue to do business separately from each other, we cannot hope to survive; and that it is indispensable for our survival to develop our operations from a viewpoint of what should be done to help solve our customers’ problems. This means dealing with customers not through the separate containership and logistics divisions, but as a comprehensive logistics division.

 

A keen awareness of this stance and the further expansion of innovation and ingenuity hold the key to the revival of the containership and logistics divisions. I am firmly convinced that this strategy is absolutely right. On reflection, I think that what was lacking was speed in our effort to secure and foster able personnel equipped with a wide-ranging business knowledge needed for comprehensive logistics. In this respect, I will take appropriate measures as soon as possible.

 

Next, our air cargo transport business paved the way for complete independence, including aircraft operation and maintenance, during the first half of last year after many strenuous years. Regrettably, however, this division has been most severely impacted by a fall in cargo volumes stemming from the current crisis. 

 

However, the air cargo transport business also promises to show a steady increase in cargo traffic over the medium and long terms. Moreover, we are looking forward to the approaching delivery of new airplanes that excel in fuel efficiency and environment-friendly functions, such as low noise levels. This division now finds itself at a crucial stage. We must not waste the arduous efforts made thus far.

 

I have so far focused on our business divisions. However, are only the business divisions to be responsible for that which we have yet to improve over our rivals in the area of earnings? Is our finance truly competitive? How about the information technology (IT) division? How about seafarers’ expenses and dock-related costs? Is the corporate division truly exercising innovation and ingenuity to provide competitive service to the sales divisions?

 

I said that hardware alone makes no difference. To put it conversely, however, even a minor difference in hardware can make a big difference in competitive capacity. In this respect as well, the technology division continues to gain in importance at a time when the environment has become one of our most important concerns. As such, this division is truly a world of innovation and ingenuity in itself.

 

After all, innovation and ingenuity have turned out to be keywords for many divisions. Innovation and ingenuity belong to the sphere of human ability. That is why people are said to be the most important assets for an enterprise. And I will never fail to invest in people.

 

Innovation and ingenuity require intensity, and cannot be achieved single-handedly. To achieve innovation and ingenuity, the support of customers and fellow workers is indispensable. And it is integrity that underlies this relationship of support.

 

Integrity, innovation, and intensity for environmental protection and safety.

Integrity, innovation, and intensity for customers and on-site service.

Integrity, innovation, and intensity for our fellow workers in the entire NYK Group.

 

And all of you are asked to join me in making great use of this integrity, innovation, and intensity in our Yosoro Project.

Let me conclude this message by offering my sincere wishes for the continuing health and prosperity of you and your families.