The traditional New Year’s messages from the three big Japanese shipping and logistics companies have re-emphasised their corporate strategies. NYK has been articulating its new strategic policy for over a year and Mitsui OSK Lines (MOL) and “K” Line have begun to follow in quite similar directions. Despite the pain that all three have felt over the past few years they have re-affirmed their commitment to container and bulk shipping whilst expanding aggressively into oil and gas.
Notwithstanding falling revenue in its liner business MOL appears to be unwilling to relinquish its position in the container market. In his New Year message Koichi Muto, MOL’s Chief Executive Officer, suggested that containership business will move into a counteroffensive year, utilizing a new fleet which includes the world’s largest container vessel, enabling MOL to regain cost competitiveness.
“K” line has been more modest as it is only investing in a further 10 14,000-TEU containerships, alongside 10 large car carriers capable of carrying 7,500 cars (thus meeting specifications for the transport of large construction equipment and rail cars that the market is expected to demand), and 25 dry bulk carriers.
NYK Line which has the largest container business of the three, appears to be a little less bullish. Its President commented that, “In order to ensure that we continue to record stable profit across the overall NYK Group in this environment, we must continue our market activities based on a business model with stable freight rates, as well as focusing on fleet composition resilient to market conditions and constantly maintaining cargo-long positions in non-stable freight rate businesses.” He pointed-out that the company was moving half as many containers again in 2014 as it moved ten years ago, although on 20% fewer ships. In contrast the numbers of cars carried by its ‘bulk-ship’ division over the same period has doubled. However the fact that NYK agreed to pay a fine of US$50m to the US regulators in the latest stage of its anti-competitiveness enquiry suggests that the pricing environment was also more generous to NYK than that in the container sector.
But it is oil and gas that has offered all three companies real potential for growth. Yasumi Kudo described how NYK has, “Been able to enter upstream and midstream businesses in the LNG value chain. This is a first for a shipping company and an achievement we would not have even considered possible 10 years ago.” This development offers a very different business model to container and bulk shipping.
Yet the threats in this sector are substantial. For example MOL is expecting the delivery of its first ‘ice-class’ LNG carrier designed to carry gas from the Yamal field in western Siberia to world markets including Japan. The danger for this programme is that whole Yamal project is being threatened both by financial sanctions against Russia and the potential fall in gas prices driven by the fall in oil prices. Similarly “K” Line has been busy investing in PSV and FPSO’s just as the market for these has taken a sharp downturn. A jewel in the business of NYK has been its investments in complex operations around LNG liquefaction and transport in fields in Western Australia. These have the potential to supply huge quantities of gas to Japan, however the price of such gas is high and both the expansion of the project and even the marketing of gas is vulnerable to fluctuations in the gas price.
The oil and gas sector’s demand for hugely complex logistics activity must be very exciting for all three of the big Japanese shipping lines. The opportunities the sector offers are quite different from the highly commoditised sectors that compose much of the rest of the shipping companies’ business, however they do carry real risks of a different nature. As the past few months have demonstrated the price of both oil and gas are volatile and are affected both by economics and politics. Investing in this sector injects uncertainty into any corporate portfolio.