NYK president Tadaaki Naito marked the 132nd anniversary of NYK’s founding by addressing company employees at the NYK head office in Tokyo on October 2. A summary of his speech is provided below.
In October of last year, we decided to merge our liner business together with those of two other Japanese companies, and the new joint-venture company is planned to start operations in April of next year. This liner integration will have far-reaching impacts, and I believe it is a major turning point for the group. Today, I will concentrate primarily on this integration and its impact.
Background of the liner business integration
Containers are an extremely appealing method of transportation that enable transportation to and from inland locations rather than just port to port, and they also make it possible to ship cargo of all shapes and sizes, including frozen and bulk cargo.
This appealing transportation system has achieved rapid growth since it was first introduced, and presently, 150 million TEUs are transported around the world every year. Moreover, growth is expected to continue in the future. On the other hand, from a business perspective, there has been excessive competition to capture the market, and the business has been subjected to unending international competition. We were able to achieve results by improving the efficiency of operations, such as through the IBIS (Innovative Bunker and Idle-time Saving) and EAGLE (EQC Aspiration for Global Efficiency) projects, cost-reduction initiatives aimed at optimizing management on a container unit basis, but it was difficult to maintain the business.
The decision to integrate the liner business was made in order to achieve the necessary competitive strength by securing critical mass in terms of operational scale and ensure the business survives. Also, our two partners in the integration are Japanese shipping companies. In addition to currently belonging to the same consortium, we are familiar with one another, and I believe they will be good partners. The new joint-venture company will utilize the best practices of the three companies and everything will be created from scratch, and this will require significant effort. For us, getting the new company off to a smooth start will initially be the most important issue. Following this, it is my expectation that the business will be able to achieve stable profits.
Impacts on the NYK Group
The liner business has historically supported the entire group as a core business. Presently, in terms of scale, the liner business accounts for almost 30% of sales, 19% of all employees, and 13% of operational ships group-wide. Through the integration, this huge division will be shifted outside the company as an affiliated company accounted for by the equity method.
Once the integration is complete, it will be necessary for the remaining divisions to take over the functions that are currently performed by the liner business division, including fostering international personnel, acting as an antenna for new business opportunities and information, and serving as the point of contact for customers, business partners, and government agencies. Also, in the area of sales, through an expansion to the logistics division, we will aggressively work to increase sales.
In response to this, we have reviewed the governance of the group companies operating around the world and have decided to shift to a new organizational framework from April 1 of next year. In addition, while the new joint-venture company will adopt the best practices from each line with the aim of increasing its competitive ability and overtaking the competition, the businesses that are peripheral to and affiliated with the liner business — such as domestic terminals and harbor transport within Japan, tugboat services, inland transportation, and ship management — need to further refine their capabilities and achieve even higher competitive strength in order to survive in the new era.
In this way, through the liner business integration, the entire group will face a major turning point. We should approach this turning point optimistically as a positive business opportunity and aim to achieve further growth and expansion.
Flexible, expedient business management
The changes in the business environment are pummeling the company with significant strength whether we like it or not, and both the scale and impact are increasing. Starting with the liner integration, we will overcome these transformations, and in order to survive into the next era, we will introduce a business portfolio for the group businesses that can be expanded and contracted to match both the environment and current era.
In response to an environment that requires flexible, expedient business transformations, from next year, we will revise the group management structure from the ground up and shift to a structure that enables the effective use of management assets throughout the group.
My time today is limited, so I will not be able to present any specific guidelines for the management divisions and business areas other than the liner business, but I would like to include them in the new medium-term business plan that is planned to be formulated at the end of March 2018.
At the foundation of the 132-year history of the NYK Group is the DNA that has been passed down through the generations, and this DNA continues to give life to the company today in the form of NYK Group Values, the 3 I’s (integrity, innovation, intensity).
In a world that requires responses to dramatic changes, such as those brought about by digitalization, without forgetting the basic principles that have been passed down from previous generations, we will further differentiate ourselves through creative solutions and innovative ideas, and we will forge ahead into the new era half a step ahead of our competitors.