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New Year's Greetings from President Kudo

January 4, 2012

Happy New Year to All of You!

In 2011, Japan and its economy was severely hit by serious natural disasters. The Tsunami triggered by the Great East Japan Earthquake and the problem of radioactivity from the Fukushima No.1 nuclear plant brought tremendous difficulties to large numbers of people. Industries in Japan, particularly the automobile industry, came to a complete standstill. Furthermore, soon after the Japanese automobile industry showed signs of recovery, the supply chain was blocked once again by the floods in Thailand. Fortunately, most of the automobile manufacturers resumed production from December and will hopefully reach normality soon.
Elsewhere around the world, many other historical events occurred during 2011, with political unrest and uncertainty increasing the risk for the world economy. Instability continues in the Islamic States of North Africa and the Middle East after the revolutionary movement for democracy referred to as the Arab Spring. This continuous unrest is one of the reasons for soaring oil prices. Additionally, Somali pirates have expanded their field of activity and continue to be a serious danger to world trade.
In Europe, the problems of a single currency with independent fiscal policies set by each Eurozone member country, finally came to the fore. The financial crisis stemming from weaker Eurozone countries spread across Europe. Inconsistency between a single interest rate, international competitiveness and fiscal policy by Eurozone member countries resulted in governmental over spending and excessive personal consumption. The countries over-spending were financed mainly by French and German banks, through the purchase of high-yield government bonds. As the system was not sustainable, it naturally led to the current financial crisis, which reminds us of Lehman's fall in America. The US has not recovered from that turmoil and the controversy over raising the maximum debt limit in Congress caused a downgrade of the long-term sovereign rating. Just as the US needs more time for its economy to rebound than originally expected, we must be prepared for a long-term sluggish economy in Europe.
The slump in the two major markets of Europe and America is evident in container lifting from Asia. Although the final figures have not yet been published, volume in the Trans Pacific trade grew only until the summer and contracted afterwards. It seems the annual volume for 2011 has stayed at the same level as 2010. In the Asia - Europe trade, sound growth has turned to a sudden fall after the summer and the year ended only a few percentage points above the previous year.
In comparison, when we focus on the emerging countries, we see a different outlook.. steady and rapid economic growth in Asia and the developing countries, which account for more than half the population of the world, is the biggest opportunity, without any doubt. Chinese GDP continued to grow at a high rate of 9.5% in 2011 and is expected to maintain 8% to 9% this year as well. Although Indian GDP growth appears to be slowing down in comparison with 2010, which was over 10%, it maintained 7% growth in 2011 and is expected to be the same for 2012. ASEAN 5 will stand at the same level of 5% as 2011. ??We cannot deny the risk of weaker demand in the West having a negative affect on Asia, who largely depends on exports. However, growing demand in Asia will be the key for strong growth in the region overcoming the slump in the west. Now we see a major shift in the trend, Asia is no longer only an exporting region but creating an enormous consumer market surpassing the US or Europe. The number of cars sold in China is much greater than in even the US or Europe now, and might reach nearly 19million in 2011. Growing consumption in Asia stimulates demand for natural resources and food that are in short supply in their own countries. Actually, the shipment of natural resources and foodstuffs to Asia has increased steadily in recent years and will continue in the future Once again, the economic growth in Asia, home to more than half the world’s population, is a great opportunity for us based in this region.
“More Than Shipping 2013,” the new medium-term management plan announced last year, is designed to maximize our growth under the current global situation.
First, with regard to our global logistics business, since stagnant demand in the West and oversupply of mega-containerships are predicted, our ordering of new containerships should be suspended for a while, and a light-asset business model should be adopted whereby vessels and space would be leased as needed, thereby minimizing downside risks and sustaining business. Simultaneously, we should capture opportunities in the rapid growth of the general freight logistics market in Asia, through the freight forwarder business, a prime example of light-asset business. The merger of NYK Logistics and Yusen Air & Sea Service Co., Ltd is totally in line with this direction and will be completed this year when China and Indonesia come on board. We shall materialize the company’s strategy of expanding business through the "Value added services to customers".
The crude oil tanker business is also struggling because of oversupply and the sluggish demand in developed countries, but the demand in Asia is steadily growing. For the time being, we will make full use of our surplus vessels in highly competitive markets, such as VLCC, to increase our customer base in Asia. At the same time, with a focus on offshore oilfields, which will be the main source of oil production in the future, we have already entered in such upstream segments as shuttle tankers, drillships, and FPSO, which pose a high entry barrier in terms of safety and ship handling.
With our strength in safety and quality of operation, we can expect further opportunities for expansion of the LNG carrier business, which is drawing wider attention due to the recent re-evaluation of nuclear power plants. .
Demand for natural resources such as iron-ore, coal, nickel, wood and foodstuffs is also growing steadily in Asia. We have been successfully expanding our long-term contracts   with clients in China, India and other Asian countries. Currently, due to the over-supply situation, the dry bulk market in general is stagnant. However, as the wave of new building order has ceased these days, a stable business environment will surely be restored.
We shall work hard to be back in profit for FY2012 based on “More Than Shipping 2013”, which enables us to grow under the current business circumstances.
However, even as we strive to return to profitability, due to the gap in supply and demand remaining through the year, we cannot expect the recovery to be as rapid as we achieved in FY2010. Under these circumstances, corporate division is expected to assist management to find the best balance of implementing proper measures to overcome these short term challenges and investing for mid- to long-term growth. .
A serious accident under the current financial position could harm the company critically, therefore safety and quality of operation is vitally important now more than ever. In addition, to achieve our important task, as a shipping company, to reduce emissions from vessels, slow steaming is always encouraged, which also should be the most effective solution for saving operational cost. The “Human Ability” of shore-based and onboard crew members can make large differences in safety, quality and emission control. Highly skilled seafarers are also the key for the expansion of our LNG and offshore businesses. To reinforce our direction to secure talented seafarers, we opened “NYK-TDG Maritime Academy”, a maritime college in Philippines. Last September, we celebrated the first graduation of 116 cadets from the academy. We are confident that they will be a core of strength for NYK in the coming years. Only “Human Ability” can differentiate ourselves from our competitors, therefore we shall invest in our people as we did in maritime academy.
Last year, corporate governance and compliance drew broader attention again. ?? Regrettably, one of our group companies received a corrections advice under the Subcontract Act, which constitutes competition law, in Japan.
Every year, all over the world, the penalties for violation of competition law are being tightened and the law is being applied more and more stringently. This is definitely a cause for concern. We must all remind ourselves that the sustainable growth of our company is directly linked with symbiosis with our society.
As part of our CSR activity, we encourage and support our employees to volunteer to help people in Rikuzentakada City in Iwate Prefecture, in the wake of the earthquake disaster last year. There is still a long way ahead for the reconstruction efforts in the disaster-stricken areas, and we will be continuing our assistance effort this year as well.
We are entering the second year of our "More Than Shipping 2013" term and expected to show the achievement internally and externally. I am confident that we are heading in the right direction to grow further by differentiating ourselves and focusing on emerging market such as Asia. By offering our global network, advanced operational skill and comprehensive logistics solutions, I have no doubt that we will reach our goal.
Our Group Values of "Integrity, Innovation, and Intensity", underpin our "Human Ability" as the core competence of NYK group, regardless of division or region. If we integrate our world-wide "Human Ability", what we can achieve will be much greater.
Lastly, I would like to end the address by wishing all of you and your families’ best wishes and good luck. Thank You.
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