January 5, 2011 - Kawasaki Kisen Kaisha, Ltd. (“K” Line) - At the start of the New Year, I extend these New Year's greetings from the headquarters in Tokyo to all members of the “K” Line Group around the world. At this opportune time to prepare ourselves for the challenges we face in 2011, allow me to share with you a summary of events from the previous year together with some reflections and hopes for the future of “K” Line.
Since the autumn of 2009, the economies of developed countries including Japan, the United States, and many European nations have been undergoing modest recoveries, driven by strong growth in the BRIC countries and emerging nations, which were able to extricate themselves from the adverse effects of the collapse of Lehman Brothers. In the 2nd quarter of fiscal year 2010, “K” Line’s financial results improved substantially, with consolidated operating revenues up 29.9% from the same period of the previous year, and ordinary income reversed from a historical low of minus 49.9 billion yen in the 2nd quarter of fiscal year 2009 to plus 42.8 billion yen. Almost all of the losses in 2009 were in the Containership Sector, and last year 1.5 million TEU, the equivalent of 12% of the world’s containership fleet, was idle or laid-up; but since then, the recovery of cargo volumes has exceeded our expectations and the containership fleet has steadily been put back into service. Last year, we too had 12 vessels idle or laid-up including cold lay-up, but we were able to restore all vessels to service by May. In addition, many shipping companies have been spurred by rising fuel oil prices to implement eco-friendly slow steaming; as a result, newbuildings were absorbed by the global market, and we observed a recovery of the market. The most fortunate development in 2010 was a recovery of containership freight rates.
At the time of announcement of financial results for the 2nd quarter, our projections for the entire year were operating revenues of 985.0 billion yen, ordinary income of 55.0 billion yen, and net income of 32.0 billion yen, but our projection for ordinary income in the second half is 12.2 billion yen, nearly the same as the 12.0 billion yen predicted at the time of announcement of financial results for the 1st quarter. This indicates that the business environment is not at all optimistic.
When I became president, my primary mission was to move the company into the black and effect an early resumption of dividends. By taking measures such as cancelling agreements for high-cost containership charters, the containership business, which was a core and urgent issue, recorded ordinary income of 25.6 billion yen in the first half of fiscal year 2010, and as such we achieved my primary mission quickly. Moving forward, we established the Business Restructuring Task Force and the Organization Reformation Task Force with the objectives of adopting a new management plan to improve our financial strength and expand the stable earnings base and sustainable growth. We are now taking additional measures towards the successful accomplishment of these goals.
Turning to the current business environment, in the United States economy, indicators seem to be experiencing advances and retreats as a result of a number of measures to ease credit, but even so, a moderate recovery is ongoing. In the Euro zone, a gentle slowdown is expected as the reduction of fiscal deficits puts downward pressure on economies, but northern European economies, particularly in Germany, are solid. In China, economic growth of “about 8%,” the annual target set by the government, is almost certain. On the other hand, per capita steel consumption in India, which has approximately the same massive population as China, is only one-tenth that in China, and electricity consumption is only a little more than one-fifth. Rapid development of infrastructure is a pressing issue in India, and there is still considerable potential for growth. The ASEAN countries, including Thailand and Indonesia where automobile industries are performing well due to improvement in income and employment, are serving to some extent as a driving force of the global economy. In this way, the global economy is making a comeback from the recession following the collapse of Lehman Brothers, and we believe that worldwide marine cargo movement will gradually but steadily increase in the future.
"K" Line has made a V-shaped recovery in response to the changes in the business environment, and now, to make a new management start, it is necessary that each division adopt business plans from a global perspective that can effect Copernican revolution. In the Containership Sector, by making further structural improvements and continually enhancing competitiveness, we can be successful in fierce competition and establish a solid position in all trades, including North-South Trades and rapidly-growing inter-Asia Trades. In the Dry Bulk Sector, we must strengthen our relationships with Japanese customers and continue to steadily develop business that responds to demand in China, India, Brazil, and other emerging countries. I look forward to working together with our overseas offices in London and Singapore to take new measures for the development of a broad range of business.
In the Car Carrier Sector, we are under pressure to revise our existing business models based on an awareness of the structural changes that are taking place in the main Japanese export environment. We should not simply focus on the number of automobiles transported, but also carefully investigate measures to address RORO freight, including construction equipment and the characteristics of emerging areas, so we can face major changes with even more dynamic ideas. In the Energy Transportation and Tanker Sector, although the downturn in the tanker and LNG carrier market is expected to be protracted, we are actively investing in new businesses with respect to the development of various energy resources, including offshore support vessels, ultra-deepwater drillships, and floating LNG producers. We must develop these new businesses into core profit sources while at the same time implement business structural reform initiatives. It will be increasingly important for us to use bold concepts in drawing a future image of the Energy Transportation and Tanker Sector from the perspectives of business growth, profitability, and investment efficiency.
In the Heavy Lifter Sector, we will invest resources and reexamine organizations to maximize business development that accurately anticipates a recovery in demand, and in the Total Logistics Sector, we will take full advantage of our purchase last year of a forwarding company in the United States to develop the Group’s logistics business, and we are very much aware that these are pressing issues.
It is essential that we address the impacts that the development of these businesses impose on the global environment by contributing to the implementation of environmental preservation measures as a member of international society. “K” Line is taking cutting-edge measures such as a water emulsion fuel that can reduce NOX emissions because it is a mixture of oil and water and will enter the actual testing phase in January. Japanese shipbuilding firms are developing numerous environmental technologies such as eco-ships that raise fuel efficiency, and it is crucial that we constantly take measures to be a world-leading shipping company that collaborates on such development and adds to the shipping technologies and skills of shipping companies.
As a leading member of the global shipping industry, it is important that we review our business portfolio and develop vigorous business plans, and we are now carrying out diligent investigations so we can announce a new business plan in the near future based on the deliberations in the Business Restructuring Task Force and the discussions held during the interviews conducted with individual divisions in December. In the late 1960s and early 1970s, new and revolutionary transport modes were introduced, including containerization in the liner sector and pure car carriers in the automobile transport sector. Since then, however, no creative transport modes that can rival these have appeared. I believe that the business reviews conducted as a result of the collapse of Lehman Brothers are an excellent opportunity to reassess our existing forms of business, and I have high expectations that each and every one of you will come up with innovative ideas and participate in the adoption of new business plans.
Last year, we faced an extremely alarming situation when our ships were attacked by pirates. Although this is a problems that cannot be resolved quickly, we are praying for the safety of all ship crew members and vessels operating in regions vulnerable to pirate attacks, including the Gulf of Aden, the Arabian Sea, the Malacca Straits and the vicinity of Mangkai Island, and we are making company-wide efforts to implement countermeasures against such attacks. I would like you to renew your awareness that safety in navigation and cargo operations is crucial for obtaining the trust of our customers and continue to thoroughly adhere to the “K” Line safety in navigation systems developed by ship crew members and others involved in marine transport over many years.
Last but not least, I will remind you that the human element is our most important asset, and without the bonds that unite the “K” Line family, there can be no development for us in the future. I promise to you to value the spirit of undertaking new challenges and would like to express my very best wishes for the well-being and happiness of all "K" Line members and their families around the globe, and my sincere hope for the safe passage of all "K" Line Group vessels throughout the year.
Kenichi Kuroya
President & CEO