11, 01. 2004
In an Unparalleled Good State through Business Related to China
Shinagawa Wharf of Tokyo Bay
Japan's shipping industry is undergoing a boom of an unprecedented scale. According to consolidated financial results announced for the year ending March 2004, Mitsui O.S.K. Lines, Ltd. and Kawasaki Kisen Kaisha, Ltd. ("K" Line) posted record net profits, and Nippon Yusen Kabushiki Kaisha (NYK Line), the largest shipping company in Japan, made substantial gains of more than 200 percent as compared to the previous year.
The biggest factor for such growth is that business related to China showed active freight movement.
The export of housing-related products and sundries from China to the United States increased, and freight charges for container vessels rose. The market for the maritime transport of raw materials, such as iron ore, to China by bulk carriers was also favorable. Furthermore, economic growth in the U.S. backed the increase of freight charges.
There are three major categories of maritime transport: energy transport by tankers, such as crude oil; raw material transport by bulk carriers, such as coal and iron ore; and container vessels. They are all currently doing favorably. Although the Japanese shipping industry has repeatedly undergone upswings and downswings after the end of World War II, this is the biggest boom to date.
The shipping majors expect that growth in the shipment of goods from China, a global manufacturing base for clothing, consumer electronics and other items, to mega consumers such as the United States and Europe will continue for some time. They are rushing to invest in newly-built ships, such as container vessels, car carriers and liquefied natural gas (LNG) carriers.
A Sharp Appreciation of the Yen Brings about the Industry's Biggest Crisis
The Japanese shipping industry grew sharply commensurate with the growth of Japanese imports and exports during the country's period of rapid growth. However, the sharp appreciation of the value of the yen (and the fall in the strength of the U.S. dollar) advanced as a result of the Plaza Accord of 1985. This put the Japanese shipping industry in its biggest pinch. Income from freight transport, the majority of which is dollar-based, was cut by half for Japanese shipping companies due to the exchange rate, while labor costs for Japanese seamen doubled on a dollar-basis. Suffering from a rise in costs, they drastically cut the number of Japanese seamen employed and hired foreign seamen, such as those from the Philippines, in their place. They made efforts to reduce costs, and even sold off vessels. Regardless of these efforts, a serious recession was continuing in the shipping industry, such as the first Oil Shock that had created a surplus of tankers, and a stagnation of the North America scheduled route market. Consolidations progressed in the industry, and in 1989, majors Japan Line, Ltd. and Yamashita-Shinnihon Steamship Co., Ltd. merged establishing Navix Line. In 1999, Navix Line and Mitsui O.S.K. Lines merged to become the new Mitsui O.S.K. Lines.
Three Key Points towards the Future
How Long Will the Economic Boom Last in China?
Containers are waiting for being loaded in cargo ships at Shibaura Wharf of Tokyo Bay
Favorable economic conditions often end after two or three years in shipping. This is because when shipping charges rise suddenly, companies that take orders at a lower price appear, and market position plunges. This pattern repeated itself after the end of World War II. However, the global flow of products is starting to move with China at the center, and the industry analysis is that this structure will not change for some time. Furthermore, with the Beijing Olympics taking place in 2008 and the World Exposition slated for 2010, it is expected that freight shipment will be as active as ever. However, there are rumors of an appreciation of the yuan, so there are factors that may bring about confusion.
Will the Development of New Technology Advance?
IC tags are seen as something that may revolutionize the distribution of goods. By attaching IC tags to a container, it will be possible to read out information about what and how much should be shipped during loading or unloading at the quay or when taking items in or out of the warehouse. The IC tags will accelerate the speed of goods distribution as well as be useful for sales data collection. The content of the work conducted by shippers may possibly change greatly depending on how far the development of this new technology will advance.
Can Shipping Companies Diversify into a Comprehensive Logistics Business?
Shipping companies are starting to accelerate a conversion to comprehensive logistics that is a combination of maritime transport, warehousing, and land and air transport. However, not only is market entry by companies in other business fields expected, a massive amount of advance investment is also necessary. How such costs can be alleviated will come into question.