Risk Management

The Group has positioned safety in all ship operations and environmental conservation as its top priorities and has maintained and strengthened its safe operation standards as well as a crisis management system.

An unexpected accident, particularly one involving an oil spill or other major accidents leading to environmental pollution, could occur and have a negative impact on the Group’s financial position and operating results. Furthermore, piracy losses, operating in areas affected by political unrest or military conflict, and the increased risk to vessels from terrorism could cause major damage to the Group’s vessels and jeopardize lives of the crews. This in turn, could have a negative impact on the Group’s safe operation of vessels, voyage planning and management and overall marine transportation business.

With regards to safety in navigation, the Ship Safety Promotion Committee, chaired by the President & CEO, meets periodically to conduct investigations and initiatives based on all manner of perspectives with regards to those matters related to safety in navigation. Furthermore, in our Emergency Response Manual we have set out the actions we must take in the event of emergency, and accident response is continually improved by regularly holding accident response drills. However, an unexpected accident, particularly one involving an oil spill or other major accidents leading to environmental pollution, could occur and have a negative impact on the Group’s financial position and operating results. Furthermore, piracy losses, operating in areas affected by political unrest or military conflict, and the increased risk to vessels from terrorism could cause major damage to the Group’s vessels and jeopardize lives of the crews. This in turn, could have a negative impact on the Group’s safe operation of vessels, voyage planning and management and overall marine transportation business.

With regard to environmental conservation, the Group recognizes the burden placed on the global environment by its business activities and promotes an Environmental Policy to minimize this burden. To ensure that initiatives for the environment are steadily promoted in line with the Environmental Policy, the CSR & Environmental Committee, chaired by the President & CEO, has been established to deliberate and formulate this promotion structure.

If an unexpected accident, especially an oil spill or other serious accident leading to environmental pollution were to occur, it could have a serious impact on the Group's financial position and operating results.

The Group regards thorough safety in navigation and cargo operations and environmental conservation as top-priority issues, strives to maintain and improve its safe operating standards and crisis management systems.

The risk is of extremely high priority.

The shipping business is influenced by international treaties on operation, registration, construction of ships and environmental conservation in general, as well as laws and regulations relating to business licenses and taxes in each country and region. The enactment of new laws and regulations in the future could restrict the Group’s business development and increase its business costs, which could have a negative impact on the Group’s financial position and operating results. The Group’s operated vessels are managed and operated in accordance with current laws and regulations, and they carry appropriate insurance coverage. However, relevant laws and regulations could be changed, and this may incur a cost to make the Group compliant with such changes.

We always pay close attention and work to collect information about trends in the laws and regulations in each country or region, as well as changing geopolitical risks. We determine the risks posed by each country or risk, and implement appropriate measures.

There could be a degree of impact on our financial position and operating results in order to respond in the future to newly established or amended international treaties, and laws and regulations affecting business licenses or taxes in each country or region.

As the shipping business is affected by many international treaties as well as the laws and regulations of many countries, the risk is of extremely high priority.

The occurrence of a compliance violation such as a violation of laws and regulations or a breach of corporate ethics by an officer or employee of the Group could result in loss of public trust in the Group or damage to the Group's brand image, or in the payment of a fine imposed by the regulatory authorities or compensation for damage incurred. This could have a negative impact on the Group’s sales activities, financial position and operating results.

The Company convenes the Compliance Committee four time a year as an opportunity to deliberate policies for ensuring compliance at “K” LINE and its Group companies and actions to be taken to address compliance violations.   The Group has also established the “K” LINE Group Global Compliance Policy, which officers and employees of “K” LINE and its Group companies are required to uphold. We set every November as “Compliance Month” when we distribute the president & CEO's message to officers and employees of “K” LINE and its Group companies to remind them of the importance of compliance. We also hold mandatory compliance e-learning training and compliance seminars featuring lecturers invited from outside the Company. As part of our stratified personnel training system, we conduct compliance training and we offer various other programs to systematically foster a compliance culture. 

Compliance-related risks change depending on social circumstances and public awareness and cannot be completely avoided. In the event of a compliance-related issue, the Group’s sales activities, financial position and operating results could be negatively impacted due to a loss of public trust in the Group or damage to its brand image or to actions taken in connection with the compliance issue. The risk is of extremely high priority.

The Group conducts its business in the international marine transportation market. In competing with other leading marine transportation companies in Japan and overseas, differences between the Group and peers in terms of management resource allocation in each business segment and competitiveness on cost and technology could have a negative impact on the Group’s position in the industry and on its operating results.

In the highly competitive containership business segment, the Group maintains and enhances the competitiveness of its services by participating in alliances with other marine transportation companies. However, events that the Group cannot control, such as a unilateral withdrawal by alliance partners, could have a negative impact on the Group’s sales activities, financial position and operating results.

Through differences in the allocation of management resources in each business segment and competitiveness on cost and technology, there could be a degree of impact on the Group's position in the industry and operating results. This is an extremely high-priority risk.

A business partner’s financial position may deteriorate in the future, and a full or partial breach of a contract could subsequently occur. This could in turn have a negative impact on the Group’s financial position and operating results.

When selecting business partners to provide service to or to receive service, the Group investigates their reliability as far as possible.

When it becomes impossible to fulfill the terms of a contract fully or in part, it could have a degree of impact on the Group's financial position and operating results.

The Group has many business partners around the world, the risk is of extremely high priority.

The global community's expectations of business enterprises in terms of respect for the human rights of all stakeholders in their business activities are increasing year by year.

Under such circumstances, failure to adequately address human rights issues within the Group or in its supply chains may result in a loss of public trust or a loss of talent. This could have a negative impact on the Group’s sales activities, financial position and operating results.

In 2022, the "K" LINE Group established the “K” LINE Group Basic Policy on Human Rights, based on the United Nations Guiding Principles on Business and Human Rights. This policy expands on the principle of "Human rights" included in the Charter of Conduct for the “K” LINE Group companies, which are standards of behavior for the entire Group. It stipulates that the "K" LINE Group will respect and comply with international norms and laws and regulations related to human rights, and that the Group will conduct human rights due diligence, that is, it will understand the actual or potential adverse impacts on human rights that may arise in relation to its business activities and prevent or mitigate them before they occur.

To identify the human rights issues that should be addressed as a priority in the Group's business activities in accordance with this policy, we conduct hearings with Group companies in Japan and abroad to identify issues that require stronger initiatives at each individual company and we implement action plans for improvement based on the results.

Moreover, we aim to establish a PDCA cycle through which we will implement initiatives aimed at respecting the human rights of all stakeholders in the Group's business activities.   

In the event of a human rights issue, the Group’s sales activities, financial position and operating results could be negatively impacted due to a loss of public trust or damage to its brand image.

We have established the Charter of Conduct for the “K” LINE Group companies, which are standards of behavior for the entire Group, and we respect the human rights of individuals in Japan and abroad as part of the "Human rights" principle of the Charter. However, the risk is of extremely high priority.

The Group takes measures to ensure and improve information security in order to provide safe and secure marine transportation and logistics services as a logistics infrastructure supporting global economic activities.

Cyber-attacks have become extremely diverse in recent years, and local responses and product installations alone are not sufficient for complete protection. In a growing number of cases, information leaks due to unauthorized access and system outages due to virus infections have a negative impact on the Group’s sales activities, financial position and operating results.

“K” LINE continues to reinforce its cybersecurity. To date, we have strengthened the security of our communications networks and endpoints, such as PCs and servers, and rolled out security monitoring systems using the latest technology. Furthermore, by reviewing the configuration of the global authentication infrastructure and increasing the level of multifactor and account management authentication, we have strengthened IT governance, improved levels of authentication, and bolstered measures against malware and information leaks on a Groupwide basis, thereby establishing a system that can respond quickly and accurately to cyber incidents.

In recent years, data has been increasingly used to improve safety and quality, and internet connections are used to share vessel navigation data from ship to shore. It has also become necessary to upgrade ICT equipment and networks on ships　because of improvements in satellite data transmission capacity. With a view to increased potential cyber risks as ship to-shore internet connectivity evolves, ship management companies that belong to the “K” LINE Group have obtained Cybersecurity Management System (CSMS) certifications from Nippon Kaiji Kyokai (ClassNK) since 2020. We continue efforts to enhance our ability to respond to cyber risks on ships.

"Safety" is the core competence of "K" LINE Group's maritime transport business. We will provide safer and more optimal transportation services by strengthening our response to cyber risks.

In addition to technological countermeasures, we are training employees on cybersecurity to foster a security-first mindset, and we are advancing DX based on a secure, safe, and

robust IT infrastructure.

When information is leaked due to unauthorized access or system shutdowns or other trouble occurs due to a computer virus attack, the sales activities, financial condition and operating results of the Group could be severely affected.

To provide safe and secure marine transportation and logistics services as a provider of logistics infrastructure supporting economic activity around the world, the Group takes measures to ensure and improve information security, but the risk is of extremely high priority.

Maintenances of business operations in the event of a natural disaster in the Group’s duty as the Group provides pivotal role for society, and it is a critical aspect of the justification for the Group’s existence. If a major earthquake were to occur at the heart of the Tokyo metropolitan area, many buildings, transportation systems and lifelines are expected to suffer from major damages. Furthermore, if infectious diseases, equivalent to the Act on Special Measures for Pandemic Influenza and New Infectious Diseases Preparedness and Response, were to arise and cause a global pandemic, it could seriously harm the health of many people. Reputational damage could also accompany such natural disasters and secondary disasters.

Group has drawn up a business continuity plan (BCP) for these two disasters. In the event of a natural disaster, while the Group’s goal is to continue business operations by applying or adapting this plan, such natural disasters could have a negative impact on the Group’s business.

By looking back on the series of responses we implemented to deal with COVID-19, we have completed an operational plan to guard against future pandemics. However, events that the Group cannot expect, such as the discovery of a new COVID-19 variant or the emergence of a new infectious disease could have a negative impact on the Group’s business operation.

When a natural disaster has occurred or infections covered by the Act on Special Measures for Pandemic Influenza, etc. have occurred and developed into a pandemic, it could have a impact on the Group's sales activities and operating results. They are risks of extremely high priority.

A high proportion of the Group’s business sales is denominated in US dollars. As a consequence, values converted into Japanese yen may be affected by the foreign exchange rate.

Appreciation of the yen against the US dollar could have a negative impact on the Group’s financial position and operating results.

The Group takes measures to minimize the negative impact of foreign exchange fluctuations by　converting expenses into US dollars and entering into foreign exchange forward contracts.

A high proportion of the Group's business sales is denominated in US dollars. As a consequence, exchange rate fluctuations have a degree of impact on our financial position and operating results. An exchange rate fluctuation of 1 yen against the US dollar, for example, has an estimated impact of ±1.5 billion yen on consolidated income, and also impacts the amounts used in accounting for foreign currency translation adjustments in the Group's consolidated financial statements.

Moreover, since exchange rates are always in flux, the risk is of extremely high priority.

The Group continuously makes capital expenditures for building vessels and so forth. The Company uses its own capital and borrowings from financial institutions for these capital expenditures, and controls interest-bearing debt appropriately. In addition, the Group procures operating capital required for business operations. Future interest-rate movements could increase the Group’s financing costs, which could have a negative impact on the Group’s financial position and operating results.

When procuring funds, the Group borrows a certain amount at a fixed rate of interest or uses fixed interest rate swaps for some of its borrowings for investment in ships and equipment.

The Group obtains financing from financial institutions, giving consideration to capital efficiency and appropriate leverage. Interest rate fluctuations have a degree of impact on our financial position and operating results.

Moreover, since interest rates fluctuate continually, the risk is of extremely high priority.

Fuel cost is a significant component of the Group’s ship operation costs. The price of fuel oil is extremely difficult to predict because it reflects a number of factors that are beyond the Group’s control, such as the supply and demand balance of crude oil, trends among OPEC and other oil producing countries, and changes in the politics and oil production capacity of oil-producing countries. Moreover, an expansion and strengthening of environmental regulations could require use of high quality fuel that has a low environmental impact, which could oblige the Group to procure fuel at a higher price.

A significant and sustained increase in fuel oil prices would push up the Group’s operating costs and have a negative impact on the Group’s financial position and operating results.

The Group takes measures to avoid the impact of unstable price fluctuations by fixing the price for a certain portion of its fuel consumption using futures contracts.

As fuel prices account for a significant portion of the Group's ship operation costs, fluctuations in fuel oil prices have a degree of impact on our financial position and operating results. A fuel oil price fluctuation of USD10 per MT, for example, has an estimated impact of ±10 million yen on consolidated income.

Moreover, since fuel oil prices fluctuate continually, and considering recent developments such as the situation in Russia and Ukraine, the risk is of extremely high priority.

The Group plans the necessary investments to upgrade its fleet. However, if the investments do not proceed as planned due to changes in conditions in the shipping markets or official regulations in the future, the Group may be obliged to cancel ship building contracts prior to taking delivery of new buildings and so forth, which could have a negative impact on the Group’s financial position and operating results. In addition, if demand for the transportation of cargo falls below the Group’s prior projections when the Group takes delivery of new buildings, it could have a negative impact on the Group’s financial position and operating results.

We control the estimated maximum losses within consolidated shareholders’ equity and pursue both stability and growth by maintaining the proper size of investments. We measure business risk as the estimated maximum loss for each business utilizing statistical methods such as Monte Carlo simulations.

When plans do not proceed as expected due to future conditions in the marine transportation market, trends in public regulations or otherwise, or if the cargo transportation demand is lower than expected at the time a new vessel is delivered, there could be some degree of impact on the Group's financial position and operating results.

Ask market conditions in the marine transportation industry involve a high level of uncertainty, the risk is of extremely high priority.

The Group strives to upgrade its fleet flexibly in accordance with market conditions. However, it may be obliged to sell some of its vessels or make an early termination of charter contracts for chartered vessels in case of the deterioration in the actual balance between supply and demand for vessels, the obsolescence of vessels due to technological innovation, or changes of the trends in the charter markets. As a result, there could be a negative impact on the Group’s financial position and operating results.

The Group endeavors to mitigate this risk by selling vessels based on careful examination of market trends and maintaining an appropriate balance in types of vessel ownership, such as self-owned or chartered.

If we sell our owned vessels or cancel the charter contract, this could impact the Group's financial position and operating results. The Group has made progress optimizing its fixed assets through past structural reforms and improving the sophistication of business management. We also engage in continual monitoring and take measures as needed. However, the risk is of high priority.

Deterioration in the profitability of the Group’s fixed assets such as vessels may make recovery of the investment amounts unlikely. In cases where the Group recognizes loss on impairment of fixed assets as a result, it could have a negative impact on the Group’s financial position and operating results. In addition, as the evaluation standard and evaluation method for its securities, the Group uses a market value method based on the market price on the last day of each financial term for marketable securities other than those that don't have a market value. As a result, a fall in the market price due to fluctuations in stock market conditions could have a negative impact on the Group’s financial position and operating results.

The Group continually monitors its business results and endeavors to take action to address risks before it becomes difficult to recover investments.

If impairment losses have been recognized with regard to vessels and other fixed assets owned by the Group, or if the market value of investment securities measured by market value has fallen, there could be an impact on the Group's financial position and operating results up to the amount of those fixed assets and investment securities with market value. As conditions the marine transportation and stock markets are highly uncertain, and the risk is of high priority.

Impact of changes in the geopolitical situation on cargo movements

The market environment is changing due to the division of the economic block and the change of the supply chain caused by the geopolitical situation.This is causing customers to review their supply chains and business models which accompany the local production for local consumption model and the changes in locations, and changes in cargo movements should appear over the long term. As a result, an imbalance between the shipping volume demand and the supply capacity will occur, which affects market conditions, pricing and our company's operating results. In particular, we are highly dependent on specific customers because our strategy is to expand our business and revenue through customer-focused marketing and investment, aiming for sustainable growth and increased corporate value by building and developing partnerships with the customers with whom we can share growth opportunities. The impact of customers reviewing their supply chains and business models on our company can be significant.This risk is mainly external and related to macroeconomic, geopolitical and market conditions and the pricing strategies of competitors.

More than 80% of our business is marine transportation, so cargo movement trends have a significant impact on our business activities and operating results.

We develop our sales structure by increasing the number of sales and operations personnel, hiring dedicated marine engineers, and training environmental sales staff to proactively respond to customers' environmental needs, etc. which are aligned with their growth strategies.We leverage this structure in consultations to reduce risk by quickly recognizing changes in our customers' strategies and flexibility adapting to the changes in their supply chains and business models while establishing the proper fleet and exposure control to increase our tolerance to changes in market conditions.As a portfolio strategy, we aim to allocate our resources to other businesses, focusing on businesses that play a role in driving growth by deepening partnerships with major customers, and to clarify roles according to the characteristics of each business, such as identifying businesses that share growth opportunities by strengthening relationships with customers to appropriately manage our portfolio.

Impact of uncertainty in U.S.-China Relations on shipbuilding and maintenance

In terms of regional market share of shipbuilding orders by compensated gross tonnage, China and South Korea dominated with 47% and 38% respectively of the world's total. And the ratio of China has been increasing in recent years.

We also expect to increase our shipbuilding and maintenance in China in the future due to the cost benefits.

However, uncertainty in the U.S.-China relationship might affect long-term shipbuilding and maintenance activities in China, and it is one of the risks in our business.

In particular, more than 80% of our company's vessels are docked in China, so, this is factor which may hinder the continuous vessel operations.

In addition, we have an on order for new buildings in China, and expect orders to increase in China in the future. This risk is mainly external and related to the geopolitical environment.

We operate 411 vessels which are required to sail into a dock at least once every 5 years. China has 50% of the world's repair dock supply capacity, so, if obstructive factors hindering the use of docks in China increase, it will affect our vessel operations, and it may have a significant impact on our business activities and operating results.

Furthermore, the ratio of shipbuilding that occurs in China has been increasing in recent years, and the latest data indicates that China is 47% of the market.

So, if obstructive factors hindering the use of docks in China increase, it will affect our vessel operations and it may have a significant impact on our business activities and operating results.

Our company controls on order for new buildings company-wide, and it quantifies risks to maintain a tolerance that enables us to absorb the realization of risks in the event of an emergency. Furthermore, we consider the risk from a quantitative and qualitative perspective, and diversification of the yards which we order, and consult with experts in advance to minimize risk. Dock locations for vessel maintenance are also managed and diversified on a company-wide basis. Furthermore, we are engaged in discussion with all parties concerned to formulate company-wide best practices, and everyone in our group is working together to formulate guidelines.