‘steady ahead?

æSteady aheadÆ Formation of Yusen Logistics part of NYK's non-asset strategy.

By Chris Dupin

   In October 2009, in the midst of the global recession, Yasumi Kudo, president of Japan's largest shipping company, Nippon Yusen Kabushiki Kaisha (NYK Line), laid out his company's 'Yosoro' or 'steady ahead' plan.
   It called for a combination of defensive and offensive strategies.
   For example, NYK would own fewer assets, downsizing its owned core containership fleet, while seeking to increase the amount of cargo it handles. It would review its air cargo business, and reduce costs across the board.
   At the same time the plan called for 'deepening' the scope of NYK's global logistics business and expanding its transport of cars and bulk products such as oil, coal and iron ore.
   NYK decided to merge its NYK Logistics business with Yusen Air & Sea, another logistics company it has owned a majority stake in for some 55 years. The company rebranded the combined companies in Japan as Yusen Logistics last October, and on April 1 it made the name change in the United States.
   Kazuo Ishizuka will be president and chief executive officer of Yusen Logistics (Americas) and in March named Michael Noone, a former APL executive, as chief operations officer.
   While the NYK name is better known in the United States, the company wanted to 'create a strategy that would allow it to be more flexible,' said James Craig, senior vice president of sales and marketing at Yusen Logistics (Americas).

Craig

   Use of the Yusen name here will give the logistics unit 'a clearer, autonomous identity,' he said, so the subsidiary is less likely to be viewed simply as an extension of NYK's container shipping business.
   The decision to pick a less familiar moniker is similar to what Maersk did when it rebranded its logistics arm as Damco several years ago. 'We hope to have the success they had with that brand change,' Craig said.
   Even within NYK, he said some employees wondered why NYK had two different third-party logistics providers that sometimes competed with each other. However, the merger of the two companies is a 'perfect union' because they have complementary strengths, and will offer end-to-end services.
   Yusen is very large in Asia and small in the United States, while NYK Logistics is the better recognized brand in the states.
   While both companies did ocean freight forwarding, about 70 percent of Yusen Air and Sea's revenues came from air freight forwarding with most of the remainder from ocean forwarding and custom brokerage. In contrast, about 65 percent of NYK Logistics' revenue came from domestic transportation and distribution, 20 percent from warehousing and the balance from international forwarding and origin consolidation.
   Craig said NYK is one of the top three providers of origin consolidation management-sourcing products at manufacturers overseas, consolidating cargo into containers and transporting it to final destination. Even though its origin consolidation is small compared to NYK's total revenue, Craig said it is one of NYK's core competencies. 'For the top 20 retailers we're handling import consolidation for a dozen of them,' he said.

Not Your Typical 3PL. While both of the merged companies called themselves 3PLs, Craig said they were not classic third-party logistics companies, because they had both company-owned facilities and large numbers of employees ' about 15,000 globally and more than 2,000 in the Americas.
   'We don't outsource most of this stuff, we do it ourselves,' he explained.
   The company has facilities at major U.S. ports including Los Angeles-Long Beach, Savannah, Seattle, Hampton Roads, and New York-New Jersey. It also has a relatively modest truck fleet which numbers in the hundreds and most dedicated to a customer's particular needs.
   A relatively small portion of the cargo that NYK Logistics had been moving actually went on NYK ships, Craig said. 'We have to be carrier neutral,' and not just the cargo-gathering arm for NYK Line's services.
   'If we align ourselves with NYK, then frankly we don't bring to the customer what they want, which is the best solution, the best price, the best service,' he said. 'Frankly that's one of the drawbacks of the asset-based competitors, because they are always willing to try to maximize the efficiency of their assets.'
   For example, he said NYK Logistics in recent years has moved a lot of domestic freight in international containers, from locations such as Chicago, Memphis, Galveston and Houston. This is because such transport has been priced very low as shipping lines have sought to return containers to ports for reloading to Asia where there was a shortage of equipment.
   But Craig said the logistics company actually used the boxes of two of NYK Line's competitors more heavily than those of NYK Line, because those carriers had more boxes at the locations where NYK Logistics' customers happened to need them.
   On the other hand when capacity is tight, he said, NYK Logistics is able to access NYK Line boxes before its competitors, which is the 'best of both worlds.'
   On the air cargo side, he said Yusen is even more carrier neutral because it doesn't own any assets. While NYK owns Nippon Cargo Airways, Yusen uses the airline even less than NYK Logistics uses NYK Line.
   Major vertical niches for Yusen Logistics include retail, electronics, automotive, and fast moving consumer goods.

Investing In People. After a challenging year in 2009, Yusen Logistics had double-digit revenue growth in 2010. But profit was flat because the company has been 'investing heavily for hyper growth in 2011 and beyond,' Craig said.
   The investment has been in information technology, marketing, safety and quality, including a great deal of recruitment and training.
   'We want to be employer of choice, because having good people is really what differentiates you from your competition,' he said.
   The capacity crunch of 2009 was a boon for non-vessel-operating common carriers such as Yusen, he said. The only way beneficial cargo owners could get freight handled and not hung up in Asia ' in some cases for more than a month ' was to find a NVO that could help them find a solution.
   Some companies found that even if they had a five-year relationship with a carrier they were not able to secure transport for cargo for even relatively modest quantities. But by working with an NVO, they were able to secure movements of a few boxes here and there from multiple carriers.
   'When your asset-based partner can't do anything to help, you're going to come to an NVO to find a solution,' Craig said. 'We probably secured a dozen new accounts last spring.
   'It's just a matter of creativity and nimbleness ' waiting and checking the available slots on the hour and as soon as one opens up grabbing it for the customer,' he said. 'We didn't book space six months out in anticipation of a shortage, but as the shortage developed we grabbed them a week or two out. The NVO supplies a service to both the carrier and the customer in finding that incremental demand.'
   He expects his company will be able to hold onto those customers 'because we delivered real value and they respect that.' But, 'now as the market changes and it becomes more price-sensitive again we have to be able to respond to that.'

Not Just Transpacific.    While Yusen Logistics' North America business is heavily weighted to Asia ' the transpacific accounts for about 85 percent ' globally the company is also very large in Asia/Europe and intra-Asia, Craig said.
   He is also hearing increased interest from customers about near-sourcing of product from Mexico and other locations in the western hemisphere, because of slow steaming and the vulnerability of long supply chains.
   U.S. exports are strong, and as rates rise, Craig said that may cause changes in how inland transport is priced. For example, while reloading into domestic containers has become commonplace, he said carriers may begin to offer incentives to importers to move international containers inland so they can reload them with export cargo.
   Craig said that in the last two years he's seen two things he had never seen before. One is loading international boxes with purely domestic cargo, and the other is loading export cargo into domestic containers or trucks and transloading it back into international containers at ports.

2011 Outlook. Retailers appear to be conservative in their planning for 2011, and not building up inventories, Craig said.
   'We expect 2011 to be a good year, and for the economic rebound to continue, but not to be robust.'
   But Yusen plans to drive growth on its own, saying to customers ' 'you may be up only 2 percent this year, but we want to grow with you 20 percent.' We want to take market share from our competitors and not wait for the entire pie to get bigger,' Craig said.
   Yusen Logistics seeks to do that by combining several services into an integrated package, and not compete on price alone, he said.
   'As long as price plays such an important role in the selection process, you're going to have service constraints because the provider is going to have to find a way to squeak a profit out of low-margin business. The movement of containers has really been commoditized, so it's very price driven.
   'Supply chain solutions, especially when we combine multiple services, means we can have a more compelling value proposition. That means we can hopefully enjoy a little better margin, which allows us to invest in things that improve service. It's sort of a self-fulfilling prophecy ' if you tell a carrier 'lower your price to keep my business,' then they have to cut costs in order to remain profitable, so they come up with things like slow steaming to try to reduce costs.'
   That creates opportunities for companies like Yusen if they can, for example, find ways for shippers to move cargo quickly to destination, but avoid the high cost of air transport. A shipper may not be able to live with a 30-day transit time from Asia, but not need a three-day transit either, he explained. If Yusen can find a way to get the cargo from the manufacturing plant in Asia to the U.S. customer in 22 days, for example, it may be able to win the business.
   Expertise in regulation is another area where Yusen can help customers, he said. He gives the example of a retailer who had planned to stop sourcing wood products and furniture in Indonesia because it felt it could not comply with U.S. Customs-Trade Partnership Against Terrorism requirements.
   'We said, 'let us handle it for you. We'll bring all your vendors in, we'll do all the compliance, we'll do all the C-TPAT certifications and we'll make sure that every box that leaves Indonesia headed for your distribution network meets all the requirements and you're not going to be on the front page of the newspapers because one of your boxes was the one that brought in something unpleasant.' We were able to put up a compelling enough argument so this major retailer said 'we're satisfied and we can continue to source in Indonesia,' ' Craig said.