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President Kudo's Speech at NYK's 125th Anniversary Ceremony

October 4, 2010

 Good morning, everyone! Today, as we mark the 125th anniversary of our company’s founding, I would like to share some of my thoughts with all of you.

 In the previous fiscal year, the grave impact of the financial crisis, triggered by the Lehman Brothers bankruptcy, plunged the NYK Group into an enormous deficit – the biggest ever since the inception of our group.

 By stark contrast, however, we are now certain to end the first half of the current fiscal year with sufficient profits. I am immensely pleased that together with all of you, we can celebrate the 125th anniversary of NYK's founding and look back on our history against the background of such a swift rebound in our business. It is thanks to your tireless efforts to thoroughly implement the emergency structural reform project Yosoro (Steady Ahead!) that our business performance has achieved such rapid improvement, and I would like to take this occasion to extend my respectful gratitude to all of you.

 By division, it is notable first of all that the containership business has pulled off an unexpectedly swift recovery. Owing to an extraordinarily sharp surge in fuel oil prices and a steep fall in cargo traffic, almost all containership operators found themselves with no alternative but to resort to slow steaming and ship lay-up. At the start of the year, however, cargo traffic displayed an unexpectedly swift recovery.

 On the other hand, shipping firms that remained skeptical about the rapid rebound in cargo movements continued to maintain a cautious stance on increasing shipping capacity. Consequently, the supply and demand situation worsened, sending freight rates shooting up to levels prevailing before the Lehman Brothers Shock, which in turn enabled the containership business to rapidly improve its earnings. As such, it would be a mistake to claim that the containership business has become a fully sustainable business model.

 As usual, some containership operators have been quick to explore the possibility of expanding shipping capacity at a pace faster than the recovery of cargo traffic. Meanwhile, another cause for concern is an unexpectedly slow recovery in European and U.S. cargo traffic.

 Moreover, whether or not the containership business can be transformed into a sustainable business model will depend on containership operators voluntarily choosing to lay up ships according to shipping capacity, during the next slack season. The problem, however, is that even if all operators resort to ship lay-up during the next slack season, it may not be truly possible to expect such a measure on a permanent basis.

 For our part, we have no intention of simply relying on others for help and going ahead with the expansion of our containership and air transport sectors where it is difficult to differentiate ourselves from other operators despite the necessity for tremendous investment. We should not alter our strategy of maintaining coexistence between asset-oriented business sectors and light-asset-type forwarding sectors like nonvessel operating common carriers (NVOCCs), warehousing, customs clearance, and trucking, and making both the mainstays of the general cargo transport division for such cargoes as consumer goods and machinery parts to enlarge this division as a whole through the complementary and synergistic relationship of the two mainstays.

 Meanwhile, our air cargo business, like the containership business, is quickly recovering. However, the recovery of this division is fundamentally different from that of the containership division. In order to extricate itself out of the previous situation in which revenues of about \100 billion were needed to cover expenditures, Nippon Cargo Airlines Co. Ltd. (NCA) embarked on a drastic structural reform featuring, among others, a complete change to fuel-efficient aircraft and the independent training of crews and maintenance personnel in 2005, and finalizing the restructure in 2008.

 As a result, NCA improved business operations and brought down the necessary revenue level to about \80 billion. However, the Lehman Shock reduced NCA's revenues to \63 billion in fiscal 2009, forcing the carrier to register a huge deficit. Fortunately, at the start of 2010, the trend in the recovery of air cargo traffic firmed and the latest forecast puts NCA's revenues at \45.5 billion and ordinary profit at \3.3 billion for the first half of fiscal 2010. The situation is not optimistic yet, but I am firmly convinced that the painstaking endeavors of all NCA personnel to reduce costs will undoubtedly be rewarded, making it fully possible to achieve the fiscal 2010 target of \90 billion in revenues and \6 billion in ordinary profit.

 Meanwhile, Global Logistics will grow in parallel with the increase in population and gross domestic product (GDP). Therefore, Global Logistics expansion is expected to mostly focus on the intra-Asian region, which is a common trend as of late. However, in terms of intra-Asia transport business opportunities, there is limited room remaining for expansion in this region due in part to the ton-mile factor. As such, transport business is expected to center on the forwarding sector. From this viewpoint as well, we need to reaffirm the importance of the double-mainstay strategy comprising both light-asset-type forwarding sectors and asset-oriented business sectors.
 On the other hand, irrespective of the asset type, we cannot ignore the necessity of making our services easy to use for our customers as well as enhancing business efficiency. From this viewpoint, we merged Yusen Air & Sea Service Co.,Ltd. (YAS) and NYK Logistics (Japan) Co.,Ltd. on October 1, and named the unified entity Yusen Logistics Co.,Ltd. Moreover, Tokyo Senpaku Kaisha Ltd. and NYK Line (Japan) Ltd. will be merged on November 1 to set a new company in motion under the name of NYK Container Line Ltd. Whether or not these two new firms will be able to play their roles without fail hinges on the integrity, innovation, and intensity of all of you.
 Bulk Shipping business has been quick to return to the recovery track after the Lehman Brothers Shock thanks to brisk domestic demand in emerging economies like China and India. Although cargo movements are by no means feeble, these markets have recently tended to display an ebb-and-flow tendency under the pressure of restricted shipping capacity.
 Even so, China, which already imports more than 600 million tons of iron ore – six times as much as Japan's import volume, is bound to further increase imports of not only iron ore, but also coal, crude oil, grains and other goods. This is also true of India and the ASEAN, even though imported commodities differ. Moreover, the markedly increasing production and sales of automobiles are concentrated in these regions. It may certainly be said that the emergence of fast growing markets in nearby countries offers a golden opportunity for our company's Bulk Shipping business. Already, we have steadily expanded our contracts to transport iron ore for Chinese steelmakers and the Tata Group of India. We are faced with a continued challenge as to how best to further boost our transport volumes in this field at a time when increasing shipping capacity is bringing heavy pressure on the Bulk Shipping markets.
 The Yosoro Project is entering the final and most important stage. As such, we must establish a fundamental growth strategy that addresses what, where, how, and how soon we should expand business in the Global Logistics and Bulk Shipping. At the same time, although everyone concerned with the general cargo division broadly shares an awareness of the need for a dual mainstay strategy marked by the harmonious coexistence of asset-oriented and light-asset-type businesses to transform the containership business into a sustainable business model, it is also imperative to work out a specific strategy as soon as possible.
 Although I have been dwelling on the current situation and problems of the business divisions, the corporate and technical divisions are also confronted with a host of problems. Our company's definition of a "desirable” balance sheet will fluctuate with changing economic and business environments, and we will be called upon to display adequate flexibility to cope with such changes under pressure.
 In order to support the execution of the strategies of the business divisions, we must always consider how best to distribute the management resources of the NYK Group from a global viewpoint while ensuring that the most fitting solution for the group’s future is kept in mind at all times. By so doing, our company will become a sturdy business entity capable of sustainable growth.
 Being environmentally friendly when dealing with CO2, SOx and NOx emissions must also be considered during cost reductions, now that fuel prices appear to be fixed at extraordinary high levels. In the past, the hardware aspect of our business was hard to differentiate from other companies. Today, however, a difference in technical capability in this aspect will have a decisive impact on the competitive capacity of the NYK Group.
 We have inaugurated the world's first solar powered ship as well as a module ship equipped with an air-lubrication system. Moreover, our company has built up a rich reservoir of valuable navigational techniques acquired through the operation of Chikyu and other cutting-edge vessels. These techniques are expected to be brought into full play for ocean-related projects. I believe we still have many more opportunities to actively apply the various techniques and experiences we have within our group toward different business spheres. Therefore, let us continue to work vigorously to undertake specific projects using these techniques. I am looking forward to tapping the innovation and ingenuity of you all.
 Furthermore, safety has been a top priority for logistics operations. As is evident from the Gulf of Mexico accident, the ability to work and navigate safely has become a "core-competence" that will influence our growth. Since this belongs entirely to the sphere of "human ability," we need to devote greater energies to fostering able personnel.
 Today, we have a host of problems ahead to tackle, but the DNA of the NYK Group – integrity, innovation, and intensity – will enable us to overcome these challenges. Let us do our part for the development of the world economy.
 Please let me conclude this message by offering my sincere wishes for the continuing health and prosperity of you and your families.


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