Japanese shipping execs emphasize antitrust compliance
In New Year messages, executives from Japan's big three shipping companies highlighted the importance of compliance with antitrust laws.
Yasumi Kudo, the president of NYK Line, said his company has created an executive committee to oversee antitrust law compliance, and he called on employees to “redouble our efforts to ensure antitrust law compliance in all aspects of our business.”
The remarks about antitrust compliance by the president of Japan’s
largest shipping company follow last month’s announcement by the Federal
Maritime Commission that it had reached compromise agreements with NYK
and “K” Line for alleged violations of the Shipping Act by their
roll-on, roll-off cargo operations. NYK paid $1.23 million, and "K" Line
paid $1.1 million in civil penalties as part of those settlements.
Since 2012, several shipping companies have been subject to investigation by Japanese and U.S. authorities concerning
allegations of involvement in anti-competitive practices in the car
carrier business. They have also received inquiries from European authorities.
Kudo noted, “The shipping industry continues to operate in a complicated
environment in which businesses that are subject to antitrust law exist
side-by-side with those that are not. However, the current trend seems
to be toward narrowing the range of businesses exempted from the
application of antitrust law.
“Under such circumstances," he continued, "it has become increasingly important for us
to clearly understand the content of antitrust law and tendency to
strengthen governmental regulations that subject businesses to these
laws. Moreover, we need to be aware of the scope of business subject to
such regulations. Similarly, for us to effectively compete, it is just
as important to understand which businesses, or part of businesses, are
not subject to such regulations.”
Koichi Muto, president of Japan’s MOL Group, also addressed competition laws noting that in September 2012, the Japan Fair Trade Commission conducted an on-site inspection of MOL based on cartel-related allegations in connection with car carriers.
“MOL has fully cooperated with the authorities’ investigation and is conducting a full follow-up investigation of our business conduct with the aim of ensuring even more transparent management and business operations," he said. "Legal compliance is an absolute precondition for corporate business activities. Therefore, we will continue to bolster global compliance going forward.”
"K" Line president and chief executive officer Jiro Asakura also reminded employees in his New Year message to "fully adhere to legal compliance mandates ... including those which regulate competition and prevent corrupt business practices."
Among the business activities Asakura highlighted in his speech was the order by NYK of eight larger-than-panamax car carriers, each of which will be able to carry 7,500 cars. "K" Line also acquired contracts for three LNG carriers in 2013, and this year is expecting to secure contracts for a shale gas-related transport project that is currently under negotiation, Asakura said. In the containership business, in the first half of 2013, "K" Line decided to build five 14,000-TEU ships that will be in the water from 2015 to 2016.
Asakura said he was "confident they will contribute to a major recovery in earnings."
Kudo also spoke about challenges in the liner and logistics industry, saying that “looking back over 2013, while there were signs of a slightly reduced supply and demand gap in certain vessel types from the summer onwards, a major gap still existed overall. During the year we also had to struggle with a slow market and continuing high fuel prices."
He also noted the company put great emphasis on fuel-saving activities as well as eliminating what it calls the 3Ms: muda, or non-value adding activities; mura, or unevenness in production or work activities; and muri, or excessive burdens.
In the liner business, he said the company has embarked on what it calls the “EAGLE” project, “which treats each container as a vessel, minimizes empty container movements and charges appropriate freight fees on cargo going to destinations where an empty container movement on the return voyage cannot be avoided. This project has already begun to produce impressive results.”
In logistics, Kudo said, “Amid intensified and inevitable competition in the liner sector, which has seen the greatest gap between supply and demand, we have been concentrating our efforts in the logistics business as a way to differentiate ourselves from our competitors in land transportation. We believe that our logistics business will be able to capture all the transportation needs of our clients, while promising significant growth, particularly in Asia.”
He noted that logistics profit, which reached 9.2 billion yen ($87.8 million) in fiscal 2011, fell sharply to 4.7 billion yen in fiscal 2012, and further dropped to 0.5 billion yen in the first quarter of the current fiscal year (which began on April 1).
“The major reason for this rapid deterioration in profit is attributed to 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. Nevertheless, a major turnaround has been achieved, and a recurring profit of 2.4 billion yen was posted in the second quarter. This was due in part to the slight improvements in air cargo exports from Japan, but also to profits generated by major increases in NVOCC business volumes.
He said Yusen has “firmly established the three functions need to become an international forwarder: air freight forwarding, NVOCC ,and contract logistics including delivery, warehousing and customs clearance.
“Looking to the future, Yusen Logistics is expected to increase its growth by leveraging contract logistics, a great advantage in Asia, and will benefit from the synergy resulting from the integration of Yusen Air & Sea Service and NYK Logistics to become one of the core businesses of the NYK Group."
He said the company is also encouraged by its expansion into “more than shipping” businesses such as drillships, floating production storage and offloading (FPSO) units and shuttle tankers. In the LNG-shipping-related business, it has been pursuing businesses outside ocean transportation and participating in both upstream and midstream businesses, such as developing gas fields in Australia and a shale gas in North America.
MOL's Muto said, "With no immediate prospects for any appreciable increase in market prices in the marine transport industry, MOL must be mindful of the added value it can generate and the services it can sell. We must focus on sharpening our skills in those areas. In the LNG carrier and offshore businesses — growing fields that are expected to generate stable profits over the long term — we will invest management resources to expand these businesses."
Muto continued, "We should pursue new business opportunities based on a proper understanding of new trends and market needs. Examples include the emergence of a host of new transport opportunities following the Shale Revolution and developments surrounding environmental regulations related to ships, not to mention operations peripheral to marine transport, such as terminal operations."