NYK and MOL pull themselves out of container swamp with LNG

The controversy over European gas imports from Russia has highlighted the growth of the Liquefied Natural Gas (LNG) logistics sector as a key energy logistics trade. Yet LNG’s largest market is not in Europe but Asia-Pacific as Japan, South Korea and possibly China become big consumers. This has presented a huge opportunity for some logistics service providers to enter a market with growth prospects and high entry barriers. It also offers an opportunity for some to quietly reduce their exposure to container shipping.

Both NYK Line and Mitsui OSK Lines have just outlined their medium-term logistics strategies and LNG logistics is at the heart of both of them. The two companies have struggled with poor performance particularly in the container shipping business and they need to change their business model. LNG offers what the CEO of Mitsui OSK Line (MOL) described as a “one in a million business opportunity”.

For example, over the next five years NYK’s fleet of container ships and bulk carriers will be either shrunk or be re-structured with an emphasis on an “asset light” approach. In contrast its fleet of LNG tankers will grow by a third to over 100 vessels. This will be complemented by continuing heavy investment in both up-stream and down-stream natural gas logistics, from exploration drilling support to the management of delivery terminals.

As is so common in Japanese business, rival logistics service provider MOL has come to a similar conclusion. In its ‘Steer for 2020’ plan outlined on Monday, the company said it too will aim to expand its LNG carrier fleet from 9% (in terms of asset allocation) of its business today to 26% in six years time. In contrast its bulk shipping will fall from 43% today to 37%, whilst container shipping will fall to 12% of the business. It appears that over the long-term MOL is looking to re-focus its business on a mix of car carriers and LNG carriers.

NYK Lines however also has a significant contract logistics and freight forwarding business. This has also suffered from mixed performance in recent years but it appears that NYK is determined to build a diversified ‘asset-light’ business in this market. It is aiming to expand its Yusen freight forwarding business to 1million TEUs in sea freight and 400,000 tonnes in air freight, with a focus on emerging markets particularly in Asia.

Therefore two of the worlds largest diversified shipping and logistics business are undergoing transformation as they attempt to distance themselves from the chronic unprofitability of container and bulk shipping and embrace the huge opportunity of LNG logistics.