Top > News Releases > "K" LINE's Total Group Joins Forces to Ensure Safest Possible Ship Navigation and Cargo Operations

January 4, 2007
Kawasaki Kisen Kaisha, Ltd.
(New Year Message from President Maekawa in 2007)

"K" LINE's Total Group Joins Forces
to Ensure Safest Possible Ship Navigation and Cargo Operations

To all "K" LINE and Group Company Colleagues, Happy New Year to each and every one of you !

[Safety in Navigation and Cargo Operation is our Top-Priority Assignment]

Some grave marine mishaps, including ship accidents, happened around the globe last year. Fortunately, our "K" LINE Group did not incur any serious problems, although quite a few small incidents, so-called "near misses" were reported that both startled and horrified all of us. In reality, only a slight difference exists between a near miss, small incident and huge accident. According to our present management plan, our fleet scale is expected to expand from 427 ships as of the end of September 2006 to 500 by the end of Fiscal 2008, and to a total of 700 by the mid-2010's. To safely operate such a rapidly-developing fleet, there is a great deal of need for reinforcement of "K" LINE Group's ship administration structure. In deep consideration of this, we arranged and mapped out "Ship Management Structure to Sustain Safety and Quality" in May last year. As one of the concrete measures taken, our ship inspection system was substantially strengthened by increasing superintendents for ship inspection purposes. Consequently, we carried out inspections on about 230 ships in total, including both controlled and chartered ships, in compliance with "K" LINE-QUALITY guidelines in an attempt to upgrade ship quality of our entire fleet, and further ensure safety in ship navigation and cargo operations.
The above reference to "near miss" is a reminder of the potential for a big accident; therefore, each accident that actually struck the other companies should be carefully studied by all of us. For that reason, I request every one of you to brace yourself with keen sense as to the constant threat of such happenings, whatever and wherever they may be. When an emergency arises, sound judgment made on the ground must work well without fail. I have heard about some cases where acting cowardly or fearfully has ultimately led to safe ship operation, since being a coward also requires us to be courageous, so one needs to be aware that there is a place for all of us when we are unexpectedly required to respond. While it is possible to monetarily compensate our customers for damages, we should keep in mind that once their confidence in our services based on ship safety has been shattered or lost, it may take many long years to recover their respect.

[Progress of "K" LINE Vision 2008+]

I wish to briefly report on the status of "K" LINE Vision 2008+, our intermediate management plan, with an explanation on our financial position on a consolidated basis for Fiscal 2006, the initial year of the plan. For the 1st half of the year, both operating income and ordinary income declined significantly as compared with last year and ended below our targeted numerical goals. This of course can be attributed to the hike of US$76.00 per M/T in fuel oil price over last year, also the delay in recovery of freight rates in containership operations, particularly in our Asia/Europe services. During the 2nd half of the year, it is prospected that the business environment is to improve since fuel oil prices are staying lower as well as calmer and freight rates in Asia/Europe containership services are getting back on track towards recovery. In addition, there is a tail wind bringing steady improvement in our dry bulk business. For the entire Fiscal 2006, I think that it will be possible to accomplish ordinary income amounting to ¥61 billion that was announced previously, despite being unable to reach our targeted numerical goal in "K" LINE Vision 2008+. In operating revenues, each business sector is promoting respective expansion that is supported by the global economy being in fairly good shape. I have bright prospects that on a consolidated basis, the Company will be able to reach operating revenues in the amount of ¥1 trillion for the first time ever.
In "K" LINE Vision 2008+, after having envisaged what each business sector's dreams and desires are for the mid-2010's, we posted such numerical goals as 700-ship fleet scale; operating revenues ¥1.5 trillion; ordinary income ¥150 billion; and net income ¥100 billion on a consolidated basis. In terms of expansion of business scale, we set a target for 500 ships in operation as of the end of Fiscal 2008 that can be regarded as Phase 1 which includes completion of 47 newbuildings during Fiscal 2006, 25 for Fiscal 2007 and 41 for Fiscal 2008. Last autumn, two 8,000TEU containerships, the largest to ever be deployed by our group, were completed, each being environmentally-friendly and equipped with highly-sophisticated devices. Such 8,000TEU containerships are expected to constitute our key fleet for the future of Containership Service that is our core business. Another two containerships of the same size are to be completed this spring and further four ships from 2008 to 2009, enhancing our fleet with a total of eight of the newest and largest highly-sophisticated containerships. In Dry Bulk Carrier Services, Car Carrier Services and Energy Transportation and Tanker Services, I can see prospects for profitability accumulating with certainty owing to acquisition of long-term contracts and new customers, and favorable results from everybody's efforts in their continual pursuit and exploration of overseas markets. I'd like to emphasize that I have every strong intention to further continue improving those business services and also making steady enlargement in our fleet scale. When it comes to Total Logistics business and placing it in the position of a new strategic business, we will focus on enlarging it and setting numerical targets so that this sector's overall business activities can be clearly seen from all aspects of its worldwide operations. Last July, we launched "K" LINE LOGISTICS CO. LTD. as the nucleus for our logistics business that provides one-stop service linking air/sea/land services. At the same time, we established Logistics Business Promoting Group in the Tokyo Head Office as a unit supporting logistics business conducted by all our group companies. The above concept is being pursued to best utilize the synergy of the global network of our "K" LINE Group. I am sure that this concept will gradually bear substantial fruit.

[Vigorous and Courageous Attitude towards Development of Business]

One of our current assignments is to improve profitability of Containership Services, and that plan itself is advancing with steadiness on the whole. I am asking you, however, to consider what we have to do to accomplish the huge goals that should be realized before the mid-2010's. From the perspective of reinforcement of fleet, I must report that all shipyard berths are already fully occupied at each shipbuilding dockyard, so we are therefore required to discuss and direct our attention to matters happening 4-5 years from now. Naturally, any prospects for markets of 4-5 years in the future have some uncertainties. But it can be said quite assuredly that global cargo movements are anticipated to grow at an annual rate of 3 to 4%. Therefore, we can expect to be favored with a similar increase in cargo movements that will substantially provide a steady base for our business expansion. Fortunately, our Company is becoming stronger and more capable to make necessary investment in business expansion and exploring new business fields, even if we have to take some certain degree of risk. Realistically, there is also little alternative other than accepting the fact that Japan-centered trade is reaching a point of fruition and therefore it has become all the more necessary to strengthen our overseas business bases at a more accelerated speed than ever before. In the year before last, Car Carrier Division opened offices in St. Petersburg and Istanbul as business bases for Eastern Europe and proceeded further with starting an office in Johannesburg for Africa. Dry Bulk Carrier Division established a business base in Shanghai last February as well as a new Drybulk Project Business Division in our Tokyo Head Office. This series of efforts show how diligently and vigorously "K" LINE Group is trying to build and reinforce the business structure necessary for overseas development at an accelerated speed. We also are planning on reopening a liaison office in Vietnam, an area that is being regarded as a predominant potential production base, particularly considering the possibility of its joining the WTO this year. I'd like every one of you to understand that when it comes to safety in ship navigation, we can accept being cowardly or fearful to some degree, but for business development, we definitely need to be courageous, bold and daring.

[At a Higher Speed]

For the current fiscal year, we expect to attain ¥1 trillion yen in operating revenues for the first time in our company's history. The organization continues to be operated by a relatively small number of staff, but each of whom I firmly trust as being very resourceful and active. We are continuously required to devote considerable care to our traditional "K" LINE Spirit, exhibiting vigorousness in taking action in advance of other people. If one were to just do the same thing as other companies, we would not be doing the way of our "K" LINE Spirit. In that regard, I dare to ask whether you are spending your time and labor only in attending various committees or meetings. My anxieties are increasing in parallel with the substantially increasing number of meetings. More precisely, I am asking you whether we are spoiling "K" LINE's edges and the strong points attributed to our organizational compactness and quickness. Of course, satisfactory discussion is important, but quickness in action is also of equal or more importance as well. It is rather natural that some committees deviate from their original reason or purpose at the time of establishment as time passes or situations change. Rather, if I may say so, it would not be natural that they last for ever. Last year the Company introduced an Executive Officer System and made a structural review of criteria for resolutions, etc. This was aimed at speedier decision-making and quicker execution through transformation of authorization. I strongly request you to have the best possible understanding of our institutional reformation and simultaneously address yourselves to reformation and diligent improvement of your assignments step-by-step (I often say "Kotsu-Kotsu" in Japanese) and speedily at all times.

[Educating and Training our Human Resources]

I recognize that it is a vitally important assignment to secure and foster human resources regardless of whether at sea or on land. Without having young and new blood to carry the next generation on their shoulders, we will not be able to succeed in realization of the high goals we have set for the 2010's. New graduates are regarded as "young blood," whereas adopted staff members with working experience in other companies or industries are regarded as "new blood." Experience and knowledge that new-blood staff gained outside our Company should provide us with fresh and invaluable assets we have never had before. For the past one year, 13 new blood staff have joined us for a total of 64 including those people who have already been very active in the front lines.
While overseas development is in progress at an accelerated speed, staff members being sent overseas from our Head Office have become much younger, with 51 staff working abroad in their 20's and 30's. As opportunities for young people to work overseas will increase still more, the Company is trying to provide them with a variety of training and educational courses for working overseas. About 200 people are taking such courses every year including Chinese language classes; gaining work experience in the U.S.; educational embarkation onboard ships; position- or rank-classified classes and intra-office classes in English conversation; etc. Since some years ago, "K" Line University has been operating in 3 places around the world. It is an educational system in which mainly middle-management staff take classes at overseas offices including Tokyo Head Office. Graduates total as many as 262, i.e., 97 graduates from Richmond Campus in the U.S., 90 from London Campus and 75 from Tokyo Campus. Needless to say, they come back to their workplaces highly upgraded, tackling their jobs with greater aspirations and vigor.
In terms of acquisition, education and training of seafarers on a global basis, in April next year, the Company is planning to open a new educational/training institute in Mumbai, India named "K" Line Maritime Academy (India) under the concept of "K" Line Maritime Academy (KLMA). Some 500 Indian officers are expected to take the educational and training courses annually. The opening of this facility follows another new Philippine institute whose groundbreaking ceremony took place quite recently. All training centers of the "K" LINE Group are aimed at upgrading and better aligning with K" LINE's standards, technical level and motivation of seafarers employed by all ship management companies of the "K" LINE Group.

Summarizing the above, I would like to re-emphasize the following:

a. To basically recognize safety in ship navigation and cargo operations as our top-priority assignment

b. To successfully achieve various goals posted in "K" LINE Vision 2008+ by boldly and courageously challenging every business development and executing every job diligently, step-by-step (Kotsu-Kotsu), progressing steadily at the highest speed possible

c. To carry out concerted and patient efforts for educating and training our young and new human resources

When and if the above 3 items are met, I am firmly convinced that we will be able to reach new and unexplored levels of mountain peaks by the 2010's, a picture I have envisaged together with you in our "K" LINE Vision 2008+.

At the end, I heartily pray that all employees of the entire "K" LINE Group at sea and on shore, at home and abroad, including their families as well, may be blessed with good health, abundant happiness and increased prosperity in this New Year 2007.

Hiroyuki Maekawa
President and CEO


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