President Kudo's Speech at NYK's 124th Anniversary Ceremony

 

The financial crisis, triggered by the collapse of Lehman Brothers last fall, spread across the world like wildfire and brought about a simultaneous recession worldwide described as occurring “once in a century.” Its impact is still distinctly visible in the world economy.

 

In the face of such a financial crisis, countries around the world are not only making concerted efforts to stabilize the financial system but are also implementing large-scale business stimulus measures. As a result, in the United States, signs of the economy bottoming out have finally started to emerge, as shown by statistics on housing starts and sales of new cars. However, the unemployment rate still remains high, and it appears that considerable time will be needed for full-scale recovery of personal consumption, which accounts for 70% of the U.S. gross domestic product (GDP). Meanwhile, in some countries in Europe, like Germany, the economic downturn is showing some signs of bottoming out due to implementation of business stimulus measures. However, anxiety still persists over the recovery of the financial system, and the pace of economic revival remains slow. On the other hand, China is already on the road to recovery, riding on the strength of a large-scale business stimulus package totaling 4 trillion yuan. Even so, the recovery of exports to Western markets is a must for China’s stable economic growth. If those markets remain slack, the Chinese economy may run out of steam. As for Japan, a preliminary GDP report for the period of April to June 2009 showed the first increase in five quarters. Yet, this was primarily due to a notable recovery in exports to China and other Asian countries, as well as brisk public investments in Japan. Thus, it must be said that the actual state of the Japanese economy remains extremely fragile.

       

It goes without saying that these economic conditions are directly reflected in transport volumes by sea and air. For instance, during the first quarter of fiscal 2009, our container transport volume to Europe and the United States suffered a fall of about 30% from the corresponding period of the previous year, while our new-car transport volume from Japan plunged over 50% and our air cargo transportation volume posted a fall of 40%. So far in the second quarter, we have witnessed a rebound to some extent. Even so, this upturn is far from ideal. Meanwhile, China, which imported an average of 37 million tons of iron ore per month last year, saw a decline that lasted until January 2009 as a result of the financial crisis last fall. However, the country made a quick recovery, importing around 50 million tons per month, which is at the highest level in the history, since February. As a result, pickup has been in the latter half of the first quarter of fiscal 2009 in the dry-bulk carrier division of our bulk shipping segment. On the other hand, stagnation continues in the tanker division, which is influenced by demand in developed countries.

 

Mirroring these trends, we posted a huge consolidated recurring loss of about \27 billion for the first quarter of fiscal 2009, including a recurring loss of \19 billion for the liner trade, \15 billion for bulk shipping, and \6.5 billion for air cargo transportation. In the second quarter of fiscal 2009, a slight turnaround is expected thanks to the recovery of the dry-bulk carrier division, and hitting bottom in the liner and air cargo transportation segments as indicated by the signs of an upturn in transportation volume and freight rates. Nonetheless, our recurring losses during the second quarter of fiscal 2009 are projected to reach \17 billion.

 

It is therefore imperative that we extricate ourselves from this predicament as soon as possible. I regard today’s commemorative ceremony for our company’s founding as a rally for strengthening our resolve to restore profit in the latter half of the current fiscal year. Fortunately, transportation volumes are gradually bouncing back, but they still lack robust upward momentum. In order to achieve such a goal, we must complete our emergency structural reform project, which we have titled Yosoro, meaning “steady ahead!” With regard to the issues brought into focus as a result of the crisis, we must endeavor not only to rectify and improve the problems as soon as possible but also to further develop our positive aspects.

 

Let me repeat the key phrases for the respective segments I spoke of in my inaugural message. The liner, terminal and harbor transport, logistics, and air cargo transportation segments must emphasize “the thorough disposal of unnecessary and excess assets, and the strengthening of on-site capabilities,” and look to “resolve problems confronting customers by acquiring wide-ranging business knowledge.” Our corporate division must work to “provide cost-competitive services for business sectors.” For the dry-bulk carrier and tanker divisions, we must focus on “the acquisition and maintenance of stable long-term contracts, attaching prime importance to our customers’ needs.” Our car carrier division must seek “fleet expansion with constant flexibility for downward revision and the firm maintenance of a relationship of mutual trust with customers by constantly putting forward proposals for improvement (kaizen).” And finally, our technical headquarters must provide “front-running leadership for safety and environmental protection in the shipping industry” and “take action based on the stance of regarding the requirement for safety and environmental protection as a business opportunity.”

       

Two of these key phrases are especially important. That is, “the through disposal of unnecessary and excess assets” and “the provision of cost-competitive services by our corporate division for business sectors.” Regarding the first key phrase, we have already disposed of many vessels and warehouses by returning them early to owners or having them demolished. Excess assets, such as airplanes, that have not been disposed of must be kept out of operation so as to reduce their operating costs. For the liner segment, we have pushed ahead with a cost-reduction campaign in all fields, and have employed other measures as well. As a result, we expect to achieve a cost reduction that far exceeds our original target of \50 billion. And this drive to reduce costs should never end. Nippon Cargo Airlines Co. Ltd. (NCA) is going all out to thoroughly pare down costs. However, at a time when the speed of recovery in cargo movements remains slow, NCA deems it imperative to enlarge its operational scale in order to further enhance the efficiency of its hardware. Therefore, it has stated that it will explore the possibility of merging its operations with the air cargo division of Japan Airlines Corporation from April next year. The corporate division, meanwhile, is pushing ahead with the implementation of the Yosoro project, with prime emphasis being placed on the reduction of ship operating costs and general administrative expenses. However, I would like to urge this division to take bold and expeditious action for even higher efficiency without being afraid to modify current business practices.

 

As I have pointed out, we must first go ahead with cost reductions at a time when no speedy recovery can be hoped for in transportation volumes.

      

Next, under the Yosoro project, the task that is as important as or even more important than these emergency measures is mapping out a growth strategy for the future. For the further growth of China and India, it is indispensable to expand the importation of resources, such as petroleum and iron ore. Meanwhile, further growth of the global population is bound to bring about the expansion of transportation volumes in the liner, air cargo, and car carrier sectors. In the car carrier division, new demand for “eco cars” will be a driving force for transportation volume. In short, we can say that our business is undoubtedly a growth industry at least insofar as the volume of transportation is concerned.

 

The challenge for us will be to differentiate our vast hardware – vessels, airplanes, trucks, and warehouses – by making use of our talented “software” to meet the varied needs of our valued customers. to meet the varied needs of our valued customers. The keyword for handling this challenge, I believe, is “human ability,” as I noted when I took over the presidency – that is, on-site capabilities based on the NYK Group Values of integrity, innovation, and intensity. Consequently, I believe that growth of the NYK Group will occur through the discovery of a new business field and the creation of a system through which each staff member of our group can exercise its talents.

 

For instance, it is said that petroleum resources will be mainly obtained from deep-sea oil fields, thus generating increasing demand for vessels capable of drilling, production, storage, and off-loading at sea. These vessels require specific techniques for keeping them at a fixed point on the sea, as well as an operational ability to adhere to very strict safety standards for crude oil tankers, liquefied natural gas carriers, and other ships involved. We have already gained experience in the operation of the deep-sea drilling ship Chikyu, which is owned by the Japan Agency for Marine-Earth Science and Technology. By taking advantage of this experience, we have successfully concluded a contract to charter-out an ultra-deepwater drillship to a Brazilian oil company.

 

Moreover, how best to cope with the reduction of CO₂ emissions and a steep surge in fuel oil prices will become a matter of vital importance for us as we move into the future. Already, our technical division has succeeded at the delivery of a solar-power-assisted car carrier and has released an initial exploratory design for NYK Super Eco Ship 2030, an energy-efficient ship expected to emit far fewer CO₂ emissions than current vessels. We owe this to technological progress bolstered by the “human ability” of individuals working for the NYK Group. Let us cope positively with the need for environmental protection by giving full attention to such superior technology and regarding this challenge as a great business opportunity.

        

Furthermore, in order to fully meet the increasingly diversified logistics needs of customers, it is essential for NYK to operate in a wide range of business spheres and for each of our staff members to possess an expansive knowledge of these differing areas of potential, business domains not limited to sea transport but also encompassing various other activities, including air transport, land transport, warehousing, and customs clearance. We can cover all these spheres worldwide since the NYK Group includes Yusen Air & Sea Service Co. Ltd., NCA, and NYK Logistics. By linking their businesses organically, we can create business opportunities. Most important, however, is the quick cultivation of human resources that have wide-ranging business knowledge encompassing sea, land, and air transport. To this end, in July we launched a personnel exchange program between our group members, as all of you are already well aware. Again, the discovery of a new business field and the creation of a system through which we can exercise our “human ability” will become another major task for the second half of the Yosoro project.

 

Achieving the two principal goals of the Yosoro project – thorough cost reduction and the formulation of a growth strategy – will help the NYK Group become stronger than ever before.

 

Needless to say, our actions must be based on a sense of corporate social responsibility (CSR), placing our highest priority on safe and environment-friendly operations.

      

Let us strive together to overcome the current situation and build the best future for us all!

       

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