To all Colleagues throughout "K" LINE and our Group Companies, Happy New Year to each and every one of you!
On January 9th last year, "Mogamigawa," a VLCC (Very Large Crude Carrier) under our operation, was accidentally struck by a nuclear submarine of the U.S. Navy when she was passing through the Strait of Hormuz. As a result, there was damage to both the bottom and side with a hole puncturing the ship. The accident happened less than one week after I had just stated that safety in ship navigation must be our top-priority. Fortunately, however, there was no spillage of cargo crude oil or fuel oil. In fact, the accident might be said to have been an Act of God inasmuch as it was on the lucky side of misfortune that the entire loss was fully compensated by the U.S. Navy under marine insurance. The self-possessed, cool and thorough action taken by Mogamigawa's Captain and his crew to deal with the accident clearly demonstrates how strong and firm our Company's defense line is in the field. We all feel extremely proud that we can work with such admirable and capable colleagues. Apart from the above accident, it should be recognized that there are quite a few comparatively lesser accidents, some of which could have been serious and grave if circumstances had gone worse with a paper-thin difference. "K" LINE Group's scale of fleet is expected to reach 500 vessels towards the end of 2008, 600 in 2011 and as many as 700 in the mid-2010s. That much development of our fleet tells us that safety in ship navigation will continue to be even more important and vital. Therefore, I wish to again request that not only ship crews but also directors and staff onshore in charge of ship operations properly brace yourselves at all times in your daily business practice for safe ship operation.
With regard to Company's business achievement, I wish to advise you there are serious and deep concerns over the historic hike of fuel-oil prices, steep depreciation of U.S. dollar from impact of the subprime loan issue and likely drop in containership cargo movements. Prospects for Dry Bulk Carrier Service, however, indicate that the market will continue to fare well and stay high centering on China's strong demand. Both operating revenues and income are expected to reach historic highs and simultaneously the numerical targets for Fiscal 2008 posted in our management plan "K" LINE Vision 2008+ are likely to be achieved one year early. The present figures we are accomplishing also seem to be at as a high level as the numerical targets originally set for the mid-2010s. This leads me to recognize that we are climbing to the next stage where we are able to revise and set new targets. With a view to the above improved management circumstances, we are planning to publicize a new management plan by the end of April 2008 when financial results for Fiscal 2007 are to be announced. That will be the time when we again refresh our efforts for a new start with further leaps and greater prosperity of the "K" LINE Group.
In particular, at the time of reviewing the intermediate management plan, we request that you earnestly give us your straightforward and constructive propositions and suggestions. This request applies equally to all subsidiaries of "K" LINE Group at home and abroad and individuals working for the group anywhere around the globe. By incorporating as wide a range of propositions and suggestions as possible into a revised management plan, we are confident it will help the entire "K" LINE Group to more closely share our consciousness and understanding of various matters through a feeling of mutual and common concern regarding the need to further strengthen our future direction. Already, we have received a large number of propositions and suggestions that are of great interest and giving us pleasure in committing ourselves as to how we can incorporate each and every one of them into the new plan. I'd like to clarify some of my opinions in reviewing the management plan.
Aside from the U.S. that is being faced with much hardship, Russia whose economy is showing a boom due to a prevailing rise in prices of materials and resources, the Middle East, BRICs and VISTA are being anticipated with sureness to make further development and growth as a new type of driving force for the global economy, as well as China whose economy is already strong enough to enter the group of economically-developed nations. My prospective is that the above rapidly-developing regions will be the main battle fields for the logistics industry. In terms of future business development of the "K" LINE Group in the face of this new phase of business circumstances, we are required not only to strengthen our business ground abroad but also to rapidly reinforce our current business activities in the above regions. I wish to draw your attention to what we have already done in this connection: opening of our office in Vietnam in February last year; founding of "K" LINE BRASIL TRANSPORTES MARITIMOS LTDA. in June; and thereafter establishment of a Representative Office in India in July. By the forthcoming February 2008, we also are going to develop our present Representative Office in Dubai into a Middle East Representative Office in recognition of the active Middle East economies. Simultaneously, there is a need for further acceleration of our endeavors for entering new business fields such as heavy lift shipping business and operation of offshore support vessels.
Coping with such rapidly changing situations, I am afraid that shortage of human resources could become a bottleneck against business development in all sectors of the "K" LINE Group: business services, administration groups, offices at home and abroad for both Japanese/non-Japanese staff, etc. For example, on the basis of "K" LINE alone, 122 staff members are working overseas corresponding to 17% of our total 734 onshore staff. It shows that fostering human resources overseas is an urgent assignment for us in a true sense. From this viewpoint, I very highly assess the important role that "K" Line University is playing since the system focuses on middle-management staff around the globe. Including last year's graduates numbering 112, the total is now as many as 374; 133 in Richmond, 144 in London and 97 in Tokyo. It really encourages and inspires me a great deal to see how they seem to be further stepping up through participation in "K" Line University and presently working more energetically than ever before through their own respective initiative. I fully expect that they will continue to grow and constitute a core part of our future overall human resources throughout the "K" LINE Group.
On the other hand, mention is being made on the subject of ensuring and fostering maritime officers. We opened M/s. K Line Maritime Academy (India) in Mumbai, India last April, and in February 2008 we are planning for the opening of a training center at Pasay, Philippines equipped with up-to-date facilities for education and training. We have set a target of 10,000 trainees on an annual basis. I cannot emphasize strongly enough how important the securing and bringing up maritime human resources is as an assignment for the support and growth of our overall "K" LINE Group. Based on this understanding, I have a strong intention to commit myself to immediate achievement of this assignment without regard to any traditional framework and/or concepts.
While a historic record high is being forecast in our Company's financial position, there some anxieties are appearing like unprecedented hike in crude oil prices and slowdown of the U.S. economy triggered by the subprime loan issue. However, marine cargo movement is prospected to still grow at an annual rate of 3% to 5%. From the viewpoint of supply of newbuildings, it is certain that a substantial number of new vessels will be completed, although there does appear to be at least some partial impediments to China's ship construction capabilities; in fact, it is forecast that market trends after 2010 are likely to be uncertain or unstable to a considerable degree. Accordingly, there is much need to keep an eye on future market trends more carefully than ever before and to exercise solid judgment in investment from the perspective of properly maintaining financial order of the "K" LINE Group in addition to profitability. There is the worry that a variety of risks incurred by an abrupt change in business circumstances will be on the increase as business scale expands. Some of the risks cannot be perceived or grasped unless we put ourselves on the frontline. In pursuit of achievement of perfection in risk management, it should be recognized that in addition to the traditional patterns of organizational approach, each and every one of you should develop and elevate your own individual perception and/or sensitiveness against whatever risks may emerge on the frontline. I am sure that considering the quotation of "Mountain High, Valley Deep" will help you to understand my point. As long as we post a higher level of goal, more risks will come along. Understanding this, let's commit ourselves to make a solid advance towards each and every goal for the 2010s step-by-step.
In conclusion, I pray heartily that all employees of our "K" LINE Group on sea and shore, at home and abroad, together with their families may be blessed with Good Health, Abundant Happiness and Increased Prosperity in this New Year 2008.
President & CEO
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