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January 4, 2013
Kawasaki Kisen Kaisha, Ltd.

2013 New Year Message from President Asakura
-Dealing with Change and Achieving Structural Reform-

 As we start another year, I extend these New Year Greetings to all of you around the world. At this opportune time as we prepare ourselves for the challenges facing us in 2013, allow me to give you a summary of events from the previous year together with some reflections and hopes for the future of “K” Line.
 At the start of 2012, expectations for a recovery in the global economy rose but were quickly shattered due to a heavy impact from negative factors, such as the debt crisis in Europe, fiscal issues in the United States, and the economy in China, which exhibited signs of a slowdown. In November, the OECD downwardly revised its 2013 global economic growth forecast. Meanwhile, nations in the EU are working together to resolve the debt crisis plaguing Europe, such as the establishment of the European Stability Mechanism and the creation of a banking union. In the United States, we are beginning to see some bright signs. The housing market, which has been stagnant since the financial crisis, is finally touching bottom and automotive sales volume is outperforming forecasts. We can finally expect to see gradual but steady economic growth.
 Turning to politics, many nations, including Japan, the United States, and China, elected new leaders in 2012. Five years have passed since the global financial crisis sent the world into chaos. The world now has new leaders and systems are finally being put into place to thoroughly tackle the mountain of issues that have cropped up. I hold the hope that the world is slowly recovering from its recession. In 2013, in addition to the United States and China—which are likely to drive the global economy—and BRIC nations, I would also like to give attention to ASEAN countries. In 2012, I had the opportunity to attend the 50th anniversary ceremony of Toyota Motor Thailand Co., Ltd., which is about to reach an output of 1 million vehicles. I was able to feel Thailand’s dynamism as a growth market first hand. Indonesia is also expected to experience further growth and the Philippines is emerging as a driver of economic growth in Asia. The world has great expectations for other nations having high potential growth rates, such as Vietnam and Myanmar. As they go forward, I am confident that these markets will expand further going forward. In these regions, we aim to undertake new businesses that extend beyond the realm of our existing containership business. I believe the growth of firmly-rooted regional businesses through highly-motivated measures by overseas affiliated companies, including coastal shipping, automotive and motorcycle land transport, logistics, and port management businesses, is crucial to the development of the “K” Line Group.
 The marine transportation industry, in which we take our stand, is still facing an unprecedented crisis. In 2012, the dry bulk and tanker markets were in a historical slump and a number of operators went bankrupt. In the containership sector, there is an ongoing surplus of space due to a widening gap between supply and demand that was created by excessive introduction of large ships by many shipping companies. Meanwhile, major players in the containership sector are shifting their focus from market share to profitability. Shipping companies which have chosen to independently run their operations in the past are now looking to participate in alliances. Accordingly, market discipline began to work and freight rates have now somehow begun to be able to stand up against market undulation. In the dry bulk market, imports to China, which boasts the highest intake of iron ore imports, increased approximately 50 million tons compared with the previous year. However, even greater supply pressure than that consequently suppressed the market. However, given that the completion of Capesize bulk carriers in 2013 are likely to be half the level in 2012, we believe there are budding signs that a market bottom is near.
 In the 1st half of FY2012, we achieved consolidated ordinary income of 9.0 billion yen, owing in part to the fruits reaped from our corporate profitability improvement measures—including cost reductions—that is being carried out by all our directors and employees. Concurrently, we downwardly revised our earlier full-year forecasts for ordinary income to 10.0 billion yen and net income to 2.0 billion yen in the 2nd quarter's financial report for this fiscal year (FY). Under our Medium-term Management Plan—Bridge to the Future—we aim to build a system that allows us to secure ordinary income even during times of market deterioration. We are obligated to do whatever it takes to achieve the following three key missions—Returning to profitability in FY2012, Building a stable earnings structure and Strengthening our financial standing. To deal with the unprecedented slump currently being faced in the marine transportation industry, we implemented cost reductions, with no sacred cows or stones left unturned, and were quick to sell and scrap our excess shipping capacity. Our mission to sustain profit involves quickly and steadily executing three main types of reductions including fleet reduction (down-size fleet), service routes reductions (restructure loss-making service routes) and speed reduction (greater use of slow steaming), while at the same time, exerting our full strength to maintain reasonable freight rates.
 In 2013, the delivery of a large volume of newbuildings, which has squeezed conditions in the marine transport market, will turn a corner. The supply pressure has vexed the industry thus far, should ease up. It will take a certain period of time to narrow the existing gap between supply and demand, but we will undoubtedly be able to smoothly navigate after passing through such rough seas. The issue is how we can successfully reach safe waters. I have said this time and again but the only way is to continue to reinforce all efforts to reduce costs and develop businesses that provide stable earnings. The “K” Line Group has always worked to become a widely-needed member of society by leveraging the history and technologies of safe ship operations that we have nurtured thus far, and with forward-looking measures for new areas such as LNG carriers and PCTCs. I am confident that, even in a harsh business environment, our thorough-going client-centered attitude, which puts trust and safety first, and our determined and continuous provision of competitive services will bring about stable earnings for the “K” Line Group. One teaching of Peter Drucker is that profit is an essential cost of any business activity and must be planned and managed just like other costs of doing business. We aim to continue working with everyone to transform, as quickly as possible, the businesses of the “K” Line Group into vital components of society and transform the Group into a company that can generate stable earnings necessary for sustaining these businesses.
 Last but not least, I would like to once again touch upon legal compliance and environmental preservation, which are the absolute and necessary conditions for achieving our goals and becoming a company that is essential to society.
We are laying out a well-prepared system and with the resolution to maintain a strict stance that forbids legal violations in any case.
 Moreover, adopting all possible measures for environmental preservation is a vital requirement for a company’s sustainability. The “K” Line Group is executing various measures to increase the energy efficiency of our ships and minimize fuel consumption to reduce our burden on the environment. I am very proud to say that we have been awarded the Green Flag Award from the Port of Long Beach for seven consecutive years. It goes without saying that energy efficiency is a key to environmental preservation, but so are safe ship operations. Safety in our ship operations is the most important basis for building a strong relationship of trust with customers and carrying out our responsibilities as a member of the international society. I would like to express my gratitude to the seafarers who are responsible for the safe ship operations of our vessels, which are the cornerstone for our activities, and support the framework of the “K” Line Group. In comparison with 2011, the number of pirate attacks and hijacking incidents declined but piracy continue to be a daily threat to our maritime staff who work on the seas. We are working with both public and private sectors as we investigate ways to have private-sector armed guards placed on Japanese flagged vessels. We promise to make everyone’s safety an utmost priority and are implementing every measure we can.
 I ask that all employees of the “K” Line Group, which carries out activities worldwide, return to the basics to perform the responsibilities of their respective jobs. The cooperative efforts of everyone will build the Bridge to the Future and assure that we are ready to greet the 100th anniversary of “K” Line. Remembering to stay cheerfully and energetically on guard each and every day, let us earnestly tackle the issues before us. In closing, I would like to wish all the members of the “K” Line Group and their families good health and happiness, and pray for the safe passage of all our ships.

 

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