January 4, 2018
To everyone of the "K" Line Group, I extend my very sincerest wishes for a Happy New Year. As we enter 2018, I would like to take this opportunity to reflect on the past year and offer a look forward to the challenges ahead.
The year 2017 opened with inauguration of a new American president, an event that attracted the world's attention. Pushing a strong “America First” ideology, President Trump announced the US's withdrawal from the TPP (Trans-Pacific Partnership) and the Paris Agreement. In Europe, the United Kingdom decided to withdraw from the European Union, with the ruling party losing its majority in the general election, while in Germany, France and the Netherlands, right-wing and anti-EU parties surged forward in national elections. These outcomes demonstrated just how much anti-globalization sentiment there is. How the rise of protectionism will play out is a matter of concern for the shipping industry, which engages in global logistics. At the same time, the situation in the Middle East following the collapse of the radical Islamic State, North Korea's repeated provocations, and other developments are factors producing geo-political instability.
However, despite the uncertain international situation, the global economy is showing gradual improvement. The United States, Europe and China are showing either accelerating economic growth or economic recovery. Japan, too, is seeing better corporate performance as a result of improvement in overseas economies and a favorable employment environment. With economic activity gathering steam globally, the world's economic growth rate, which in 2016 fell to its lowest level since the Global Financial Crisis, began moving upwards last year and appears to be gaining momentum.
The "K" Line Group's business is based on global logistics. Our operations are therefore being directly and indirectly affected by international circumstances and the global economy. In FY2016, two of our major segments, Containership and Dry Bulk Businesses, were buffeted by the stormy seas of a historical market downturn. However, over the course of this fiscal year, tonnage supply pressure has weakened, while the movement of international marine cargo is robust. Thus, market conditions have bottomed out and are gradually recovering. Our Group's performance for the first half of FY 2017 successfully moved into the black from last fiscal year, a term that ended in the red. This result can be attributed to our efforts to reinforce our competitiveness through large-scale structural reforms conducted over two consecutive terms—last year and the year before—as well as to improving market conditions. While we may claim that the combined efforts of everyone—executives and employees alike—have finally borne fruit, it also appears that more time will be required before we see substantial recovery in the supply-and-demand balance. We must therefore continue to be prepared for tough times.
Under our medium-term management plan titled "Revival for Greater Strides - Value for our Next Century," which we announced in April of last year, we are focusing on rebuilding our management foundation into one that can achieve sustainable growth. This effort will continue over the three years leading up to 2019, when we celebrate the 100th Anniversary of our foundation.
The major challenges we have set for ourselves under this medium-term management plan are rebuilding our portfolio strategy, pursuing advanced management and strategy, and enhancing ESG (Environment, Social and Governance) initiatives.
For rebuilding our portfolio strategy, we will strengthen businesses that generate stable earnings as we also nurture next-generation core businesses and strive to achieve revenue stability and growth. In reviewing our portfolio, we will premise our efforts on securing returns that are commensurate with capital cost while managing the total risk by bringing greater sophistication to our risk/return management. Additionally, the pursuit of strategy by function is an important element in the operation of each of our businesses. Here, we will leverage the Group's collective strength to keep focusing on our customers with proactively incorporating advanced technologies, and develop the professional and diverse human resources that will support those initiatives.
The integration of Containership Business and Overseas Terminal Business by the three major Japanese shipping companies is a first step in our effort to rebuild our portfolio. Our withdrawal from the Heavy-Lifter Business, which we sold last year, was also a result of our taking a new look at how we should manage our overall business in the future. Ocean Network Express (ONE), the new containership company, is scheduled to start its service in April of this year. I believe this new enterprise will deliver the advantages of expansion of scale brought by the integration. I expect it will also achieve greater competitiveness by bringing to bear the best practices of the three companies and demonstrate a strong presence in a containership industry that continues to undergo a paradigm shift. ONE will be an affiliated company accounted for by the equity-method, and thus will have a different operating format. Nonetheless, Containership Business will remain a core segment of our Group, and we will continue to give it our full support.
Even after spinning off our Containership Business, we will work to ensure that the "K" Line Group continues to grow strongly by taking advantage of our high transportation quality and customer base. To that end, our entire Group must become even more integrated and execute each of our business strategies. In each of the businesses that will become the Group's mainstays —Dry Bulk, Car Carrier, Energy Transportation and Marine Resources Development—we will advance initiatives to expand our revenue stability and develop new business through technological innovation and business model reform. And Logistics Business will succeed the network established by containership business and appropriately meet our customers' needs. In this way we will strive to shape a new "K" Line Group.
The year 2018 will be the final year before we celebrate our centennial. It also marks 50 years since our first full containership, the first Golden Gate Bridge, began service on the North American route, and is the 50th anniversary of the completion of our first car carrier Toyota Maru No. 1.
Compared to those days, the per-vessel carrying capacity of containerships has grown by 20 times and that of car carriers has grown six-fold. Thus, the size of our business and our business environment has changed greatly in half a century. Nevertheless, status of the shipping business as an important infrastructure that supports people's lives and the world's economic activities remains unchanged. With an unwavering sense of pride and responsibility in our important role for society, and so that we may fulfill this responsibility, we must maintain our mental and physical health, as stated in our “Health Declaration,” and demonstrate our strengths to the maximum degree possible.
This spring, we will take a giant step forward as a brand-new "K" Line Group. Moreover, 2018 will be the year in which we solidify our foothold in preparation for the next 100 years. I believe that, if we steadfastly execute our respective roles and consolidate our strengths as professionals, this one year will become an important link to a new era. Let us all join together on this journey toward a new tomorrow.
In closing, as we celebrate the New Year, I wish all of you, the members of the "K" Line Group and your families, Good Health and Prosperity, and pray that all of our ships will enjoy safe passage throughout 2018.
President & CEO