Maersk is not the only big shipping company facing existential strategic issues. NYK Group is another shipping and logistics conglomerate seen suffering from a series of long- and short-term problems that ask questions about its portfolio.
As its recently published annual report illustrates, at the core of the problem is the container shipping business, which accounts for around a third of the Group’s revenue. In FY2015 this division lost ¥300m ($2.99m), compared to the previous year’s ¥9.8bn ($97m) profit, with the most recent numbers from Q1 2016 suggesting that the situation is not getting any better. In the context of consolidation in the container shipping sector, NYK Line is now a middle-sized carrier which it tacitly admits does not have the advantage of economies of scale. Rather it states it wishes to “increase flexibility to heighten earning power”, something that has led it to withdraw from trades, such as Japan-Australia, which it has served for decades. Of course, to outsiders the obvious move would be to merge with MOL and ‘K’ Lines which, according to Drewry Shipping Consultants, would create the fifth largest container carrier. Yet the Japanese businesses have resolutely avoided this option.
Similarly, NYK’s Bulk Division has ridden a volatile market for many years. As China’s huge appetite for coal and iron ore has moderated the demand for dry bulk shipping has suffered, whilst the shifts in the oil market have lessened the demand for tankers. In both markets NYK is a middle-sized player, although admittedly economies of scale are not quite as important here as they are in the container shipping sector. Looking at the financial results of the division it might be suggested that both dry and bulk shipping have had depressed profits for some time but have been relieved by the performance of the car-carrier business.
The car-carrier shipping operation is the enviable business that NYK possesses. Despite falling market-share it remains a leader in a sector that has seen continuing growth and strong profit margins. This is complemented by the Liquid Natural Gas vessel business which is also healthy.
NYK’s Yusen Logistics forwarding and contract logistics business has stabilised, but profits are modest as is growth. Again, it is a mid-market player that struggles with differentiation.
It is likely that NYK will approach its strategic questions quite differently to Maersk. The latter will respond with radical surgery to separate off the constituent parts of the business but NYK Group, which has been facing these problems for longer, shows little sign of such aggression. It could have merged its container and bulk-shipping businesses with its Japanese rivals to produce a strong player at the global level, whilst focussing on car-carriers, LNG and forwarding/contract logistics, but its approach to corporate strategy is different. The senior management asserts that it is prioritising investment on automotive and LNG business but appears reluctant to take the step of rationalising the rest of the Group. Whilst NYK remains profitable, with a recurring profit of ¥60bn ($533m) on a revenue of ¥2,272bn ($20bn) the pressure to take action may not be strong enough, something that runs the risk of NYK Group being left with a minimal container shipping business in the near future.
Source: Transport Intelligence, August 19, 2016
Author: Thomas Cullen