New NYK president: Overexpansion “regrettable”

New NYK president: Overexpansion “regrettable”

New NYK president: Overexpansion “regrettable”

   NYK Line's new president said Wednesday the carrier's decision to expand its containership fleet like the majority of its competitors was regrettable, and that the line must focus on a new strategy going forward.
   'Much to our regret, we have had to acknowledge anew that once supply/demand balance is disrupted in this division, there is no limit to the fall in freight rates, thus forcing us into a huge deficit,' President Yasumi Kudo said. 'Although some shipping firms operate independently and others through consortiums, sailing frequency and other containership services are basically identical. No long-term contracts are concluded. It is no wonder, therefore, that freight rates fall sharply when a supply/demand gap widens. In fact, this is what we have experienced many times in the past.

Kudo

   'Nevertheless, all shipping firms, forgetting this bitter experience, expanded their containership fleets out of a sheer desire to cope with a rapid increase in cargo traffic and the resulting tight space supply situation. Regrettably, our company was no exception. The result was clear. Shipping firms suffered a serious dual damage — a steep drop in freight rates and a massive volume of idle space.'
   Kudo said NYK would not divest itself from the container business, but instead focus on becoming leaner and less dependent on its own fleet.
   'Should we withdraw from the containership business?' he said. 'Naturally, the answer is no. Container transport offers us a growth market in which cargo traffic is bound to increase. Moreover, we should never give up providing containership service for the sake of our customers requiring our service. Besides, the supply/demand gap will disappear sooner or later because newbuilding orders have come to a complete halt due to the present abnormal situation and also because the scrapping of old containerships will gather added momentum.'
   He said NYK must switch from a business model of 'giving top priority to investment in fleet expansion — the very cause of a huge deficit — to a new sustainable business model.
   'Vessels can serve as an important tool for cost reduction through innovation and ingenuity — for instance, by means of their efficient deployment,' Kudo said. 'However, it is indispensable to slim down our fleet as much as possible from the standpoint that the possession of an excessively large fleet will end up pushing up cost.
   'We should strive to charter vessels from other firms without hesitation if and when we have to make up for shortage in our space supply, and thereby turn our ship expenses into a variable cost.'
   Kudo also sounded a positive note on economic recovery.
   'From a long-term perspective for the world economy, which is closely related to and dependent on population, the current turmoil is nothing more than a mere phase of adjustment,' he said. 'Therefore, the global economy should be expected to resume an expansionary phase in several years. Accordingly, we should regard the present crisis as an opportunity to revamp our structure and strengthen ourselves in preparation for a further leap forward in the future.' ' Eric Johnson