NYK short-term focus on non-asset business
NYK President Yasumi Kudo said his company would focus in the short-term on building a more stable line of non-asset-based logistics business until freight rates recover sufficiently to make liner shipping more profitable for the asset-based side of the company.
Tokyo-based NYK, one of Japan's big three carriers, suffered like every other major container line in 2009. And despite a recovery of sorts toward the end of the year, Kudo said there should be no illusions about the difficulties the industry will continue to face in 2010.
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| Kudo |
'Cargo traffic has rebounded since last summer, making it possible to reduce our deficits,' Kudo said in a New Year's address. 'Even so, the deficits still remain enormous. If things go on like this, there will be no change in the prospect that it will become difficult to maintain our liner trade and air cargo transport business.'
He said key to NYK's plans are the pending merger between the company's logistics division (NYK Logistics) and its forwarding division (Yusen Air & Sea Service), a move that echoes a similar merger between Maersk's logistics unit and its forwarding brand Damco.
'Liner trade and air cargo transport businesses represent growth industries that expand its demands in proportion to an increase in the world’s population,' Kudo said. 'Nevertheless, the expansion of such businesses while leaving their great volatility intact poses a grave danger and that is what we experienced last year. Accordingly, I believe that emphasis should be placed on 'non-asset' operations for the time being, in the course of our efforts to augment liner trade and air cargo transport businesses.
'This by no means rules out owning of container vessels and airplanes. Unless we possess such 'hard assets,' we lose our means of differentiating ourselves from our competitors by making the most of innovation and ingenuity. Nor is it possible to build up flexible and expeditious services desired by our customers.'
He said a pre-Christmas spike in air cargo demand out of Asia last month showed the importance of maintaining asset ownership.
'The recent recovery in the air cargo transport sector has been accompanied by a sharp rise in customer inquiries and contracts for charter flights,' he said. 'But a lack of adequate hardware will make it impossible to properly cope with such a demand.
'Furthermore, because ocean transport is a growth industry from a medium-and long-term perspective, there is the strong possibility that the supply-demand balance will settle down to a proper level in the future, if operators learn enough from their recent bitter experiences and accept slow steaming as normal practice to deal with soaring fuel prices and environmental problems. We have no intention of completely losing the expected profit in such a case. The problem lies in having an excess of long-term fixed assets.'
Kudo later reiterated his stance that NYK will have to maximize the potential of its non-asset businesses in 2010.
'We intend to restructure our business models to create a mainstay of two spheres — transport business by our own assets, container vessels and airplanes; and transport without our own assets, using ocean and air freight forwarding.'
Much of the volatility container lines have experienced in recent years stems from a lack of long-term contracts like exists in the bulk and dry bulk shipping world, Kudo argued.
'Finished products and their component parts for their manufacturing and maintenance constitute principal transport items for liner trade and air cargo transport businesses,' he said. 'Since most of them are consumer goods, however, there are no long-term transport contracts with customers guaranteeing the freight rate level and the transportation volume, unlike the resources and energy transport. As a result, once the supply-demand situation becomes tight, freight rates shoot up; whereas once supply eases, freight rates plummet. That is, liner trade and air cargo transport businesses are characterized by an extremely high degree of volatility.'
NYK, like most other lines, has had to redress the overcapacity situation by reducing its fleet size.
Through idling, scrapping or returning chartered vessels, during 2009 NYK reduced its containership fleet from 115 vessels of 410,000 TEUs to 90 vessels of about 360,000 TEUs. Its active car carrier fleet was pared from 130 vessels to about 90 vessels, he said.
'In addition, superfluous warehouses and trucks, especially in Europe, have been whittled down from 850,000 square meters to 760,000 square meters, and from 1,500 units to 1,100 units, respectively,' he said. 'Nonetheless, these surplus-reduction measures mentioned thus far do not suffice to restore profits, especially in the liner trade and air cargo transport. It is necessary to raise and return freight rates, which have plummeted sharply, to the proper level.' ' Eric Johnson