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January 4, 2006
Kawasaki Kisen Kaisha, Ltd.
(New Year Message from President Maekawa in 2006)

Merchandise that Represents "K" LINE Values and Is Supported
by Our Group Organization and Human Resources

To all "K" LINE and Group Company Colleagues, Happy New Year to each and every one of you!
At the start of the year 2006, I would like to address my message to each one of you.
It has been some 9 months since I took over this position last April from our former President Sakinaga. And it is with regret that I have to mention our being faced with some signs of hard trials ahead as I begin this address. During Fiscal 2004, we were able to mark a record high in consolidated ordinary income of ¥107.2 billion whereas during the current fiscal year, it is very likely that ordinary income will drop by some 15%.
Nevertheless, we are still going to achieve the 2nd highest level of ordinary income in our history, which makes me deeply thankful for your everyday and diligent efforts.
The major reason for this drop lies in the U.S. $90.00 hike of fuel-oil price compared with last year. Furthermore, all freight markets that were favorably maintained at a high level during Fiscal 2004 have turned downward during Fiscal 2005, especially the markets for tankers and bulk carriers. Looking at what is forecast to come along, it is a matter of fact that some uncertain factors exist, including prospects for crude oil price, fluctuation of both Yen and Yuan, trend of the world economy centering on the United States and China, also the Iraqi issue, etc. With a view to those issues, I am afraid that we are not in a position at all to prospect that the present level of achievements of the "K" LINE Group are able to be sustainable just on the unrealistic or rather narrow premise that the favorable situations we have enjoyed can continue.

< But We Must Now Stand Firm with Courage >

We must be conscious that the earnings environment has been at its best up to the present time, but that it is now beginning to retreat downward. Therefore, we must be aware of the urgent requirement to be ready to resist and counter these worsening changes by all means.
In that regard, even if any significant change happens to the surrounding environment, we have to prepare ourselves to quickly shift in a nimble manner towards any new structure that will encourage us to be responsive to and brace ourselves for any new, looming or severer circumstances.
Challenging a previously untrodden peak would never allow climbers to go up in just one bust. Rather than that, they must have the courage to include moments when it is necessary to reversely go downhill before proceeding upward. I would like to communicate with you right now just how serious it is that the "K" LINE Group is standing at such an important moment as referred to above and requiring patience and courage from all of us. We must stand firm and reserve our full strength for restarting the climb to the top for which we are aiming. Management and employees of the "K" LINE Group should join forces in bracing ourselves now. Then, we should be properly positioned to enjoy a certain degree of recovery in earnings from the next fiscal year onward in containerships, bulk carriers and car carriers, all of which are now cost-competitive with newbuildings expected to be completed one after another. These additions will provide us with good opportunities to expand our business scale and achieve improvement in profitability.
In the meantime, I also request those of you in all sectors and subsidiaries to precisely examine whether you are missing any opportunity for profit, and check whether cost management, going easier or looser, is being properly directed. I urge you to repeatedly look into your plans and practices, going back and reviewing your original intentions. In this connection, I am stressing that each and every one of you should constantly make steady and consistent efforts for achieving that which you are expected to do.
Let me brief you upon the intermediate management plan of the "K" LINE Group, "K" LINE Vision 2008, which will be reviewed in March.

< Merchandise Representing "K" LINE's Values >

The business of "K" LINE and its group is to comprehensively sell maritime shipping services as its core position together with inland transportation and air forwarding services. This means that we are selling a kind of invisible or intangible merchandise in the form of service. I think we can say that in the portfolio of our merchandise, we don't have tangible or material merchandise such as hybrid cars or liquid crystal television sets.
Ships, warehouses or containers are no more than our business tools, and can never be considered as merchandise by themselves. We manage to purchase those tools in a reasonable and economical manner and utilize them with maximum efficiency. Such creative and proactive efforts will surely enable us to produce and sell our own intangible type of merchandise in a manner worthy of "K" LINE values and to satisfy customers to the maximum extent. The essence of our business is to keep on making those efforts with thoroughness at all times.
The services we are selling are a type of intangible merchandise that is hard to be differentiated from others. That is why I wonder whether we are aimlessly selling what is available in our hands or without paying deep and proper consideration. If our merchandise is as common as others in quality, it can be nothing more than things that are not worthy of our values. In a true sense, it cannot be that type of invisible or intangible merchandise that we are targeting.
As upgrading of brand value is posted as a goal in "K"LINE Vision 2008, the "K" LINE Group has already achieved some recognizable corporate brands:

  1. Pioneering the construction of car carriers
  2. Corona-series thermal coal carriers
  3. Responsiveness catering to customers by National Customer Service Center in "K" Line America, Inc.
  4. Incomparably precise service by Documentation Center in Malaysia, etc.

You are well aware that those services are highly estimated by our customers since they differentiate us from those provided by our rivals.
In this manner, further upgrading "K" LINE's own differentiated merchandise and producing new merchandise should lead us to ever sustainable growth of the "K" LINE Group. I am strongly convinced of that and from this prospective, I emphasize that you, in all departments and subsidiaries, should make further endeavors for creation of our own trusted/salable merchandise that easily catches the eye of our customers.

< Our Supporting Organizations, Structures and Human Resources >

It is generally said that corporate management resources consist of humans, things, money, information and technology. Logically, the same principle is applicable to the "K" LINE Group.
I would select humans as the No.1 from among the five, mainly because it is they themselves who manage or utilize the other resources: things, money, information and technology. Eventually, whether corporate management proceeds with effectiveness or not entirely relies on humans.
I joined "K" LINE in 1971, a time when a large number of unfavorable factors or things were casting shadows such as cost competitiveness of the Japanese ocean-going industry having plummeted to a significant extent due to hike of personnel costs, as well as appreciation of Yen and then the oil shock. Finally in 1986, Japanese shipping companies slid into being designated as an industry in depression with little amount of sustainable force left. It really was an era of hardship for employees both at sea and on land who made up the Japanese shipping industry. To prevail against this adversity, "K" LINE and its group companies never stopped their fight against hardship, utilizing various cost-slash campaigns, KR and KV Plans, etc. A series of group-wide cost curtailments were subsequently introduced without treating any part or sector of the organization and structures as a sanctuary free from cost-cutting. After that hard process, we became sufficiently cost-competitive during the few recent years so that we are now capable of vying with foreign shipping companies on even ground.
On the other hand, I would also like to mention something new that we have to grapple with from now on. As of the end of Fiscal 2008, our "K" LINE fleet is expected to increase by 120 ships up to 480 up from the present 360. We have already finished ordering newbuildings for the most part that will help ensure further expansion of business scale compared with the present. I strongly emphasize that it will be a great task to safely operate such a gigantic fleet that is close to 500 ships. How to secure and bring up staff with maritime know-how/technology supporting safe ship management at sea and land will be an ongoing challenge to which we are committed.
In the face of such a new age, "K" Line (Europe) Limited has become engaged in the ship management of an LNG carrier, which is aimed to lay the foundation for further future development. It is prospected that there will be an increasing need to secure talented and trained staff for development and expansion of overseas bases.
Last year, we reopened the representative office in Johannesburg, South Africa and we decided to newly dispatch "K" LINE staffs to St. Petersburg, Russia and Istanbul, Turkey. To strengthen business bases, we founded our own subsidaries covering three Scandinavian countries, Spain, Portugal and Turkey, whose operations will be officially implemented this month.
Let me now tell you why we are going to review "K" LINE Vision 2008 in March this year.
We regard the forthcoming 3 years from 2006 through 2008 as a runway for making even larger strides and more remarkable leaps thereafter. To assure successful development of these jumps, I have a strong intention to reinforce management infrastructure through necessary investments in human resources even if the investments should cause a little bit of slowdown in speed of development during this runway period. With respect to not only human resources, but also organizations and structures, we have to review whether any organization is too heavily structured to function as efficiently and effectively as originally expected.
I will draw a clear picture of the most optimal and strongest organization/structure in a new and fresh framework and how our human resources should be managed in order to support our future business scale operating with a fleet of 500 ships. And I insist that we have to finish this assignment within the runway period.

< Corporation with High Degree of Transparency >

Turning our eyes to what is happening in the business world, I feel very sorry to see that humanity is still unable to break away from disgraceful cases that are a grave nuisance or embarrassment to respective entities or corporations. Haven't we been practicing common sense long enough to avoid carelessly missing vital or important points about institutions or systems? Are we guilty of being unwary or careless about some key factor or another because we think self-complacently that our efforts for safe ship management are flawless or even perfect?
We have posted as the 3rd assignment in "K" LINE Vision 2008 the matter of "corporate governance and risk management". I am sure that this same assignment has been put into practice in a significant amount of endeavors. I dare ask or would like to confirm, however, whether what we have been learning in the assignment of "K" LINE Vision 2008 has been deeply and thoroughly penetrated into and understood by people on the front line, in particular, and whether this is being carried out to perfection? I continue to persistently insist that the attitude of "No problem since everything is supposed to be done in accordance with guidelines, instructions or rules/regulations" can never ever be enough. So I request that you once again make urgent reassurance of all situations without fail.
Being very communicative and transparent is part of the strong merit within the "K" LINE Group. Being transparent means glassed in and open to everyone's view. "K" LINE should be characterized by nothing hidden, always being communicative as well as liberal and open-minded. I am sure that those characteristics will lead the "K" LINE Group to an even higher degree of transparency. Transparency also performs a most important role in terms of corporate governance. When and if we maintain higher transparency at all times, any disgraceful or unfavorable case will be prevented or at least harder for it to occur. Even if it should unfortunately happen, we would be able to minimize damage through prompt and appropriate response. It is my conviction this can be entirely applied to safe ship management. I think that even just a handful of information, if communicative, will help us to be free from or escape from danger or risk as is so well expressed in the adage "the line between good and evil is as thin as a knife edge." Taking this opportunity, I would respectfully ask once again that you all execute your work in a manner so that you are ever keeping yourselves conscious of holding and upgrading a higher degree of transparency.

In closing, it is our heartfelt prayer that all employees of the "K" LINE Group at sea/onshore, at home or abroad, and their families may be blessed with good health, abundant happiness and increased prosperity in this New Year 2006.

Many thanks

Hiroyuki Maekawa
President
Kawasaki Kisen Kaisha, Ltd.

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