NYK Lines has a problem. In the container shipping sector it is a medium sized player in a chronically unprofitable market-place that has the threat of rapid and sizeable consolidation hanging over it. Its position in the bulk shipping market is not much better.
The response of European or American companies to this problem would be a strategic solution, at least in theory. Admittedly the inability of Hamburg-Sud and Hapag Lloyd to work-out a deal illustrates that this response is not simple. Yet the most obvious solution to outsiders to NYK’s problem would be a merger with its two Japanese rivals, producing a larger player with more options and more resources. Judging by the New Year speech given by NYK Line’s President, Yasumi Kudo this is not likely.
What appears to the favoured approach is a better marketing strategy. As Kudo observed “Since entering the global recession in 2008, the extraordinary market conditions that had enabled us to make profit by merely operating vessels came to an abrupt end”. This has led NYK to develop the “More Than Shipping 2013” management plan. Part of this was diversification into the oil and gas logistics business providing “complex, special vessels that call for extremely advanced safety standards and handling technologies”. This has expanded to include large scale Liquefied Natural Gas operations. Yasumi Kudo implies that these will have major implications for the future of shape of NYK.
The other part of the “More Than Shipping” response is to build-up NYK’s non-shipping related logistics activities, particularly freight forwarding and contract logistics. However as yet this has been far from a success for NYK. As Kudo observed “the major reason” for poor profit levels was “the steep decline in air cargo exports from Japan, which had previously been seen as a strength of the former Yusen Air & Sea Service Co. Ltd., plus the burden of initial investments required to expand the non-vessel operating common carriers (NVOCC) business – one of the weaknesses of the newly established Yusen Logistics Co. Ltd”. With the reliance on air freight lessened and the forwarding business established NYK is looking to build an Asian focussed logistics business.
So the nature of NYK’s business does appear to be changing, but the question is by how much? Will these new hydrocarbon and contract logistics business be just add-ons to NYK’s already broad portfolio of businesses, or will they displace the commoditised shipping operations and enable a redefinition of NYK?