Nippon Yusen Kabushiki Kaisha

views updated May 21 2018

Nippon Yusen Kabushiki Kaisha

Yusen Building
3-2 Marunouchi 2-chome
Chiyoda-ku, Tokyo 100
Japan
(3) 3284-5151
Fax: (3) 3284-6371

Public Company
Incorporated: 1885 as Nippon Yusen Kaisha
Employees: 2,525
Sale: ¥532.71 billion (US$4.27 billion)
Stock Exchanges: Tokyo Osaka Frankfurt

For most of the 20th century Nippon Yusen Kabushiki Kaisha (NYK) was the largest shipping company in Japan. Today, based on a composite index of tonnage owned and operated as well as income from shipping business, it is the world’s leading shipping enterprise. NYK provides a full range of shipping services, including regular liners, trampers, tankers, and specialized vessels such as automobile carriers. Historically, its most distinctive characteristic, still strong, has been its leading role in freight conferences or shipping cartels.

The history of NYK’s business operations can be divided into four periods. The first marks the company’s establishment in 1885 and consolidation over the next decade. In the second, from the mid-1890s to around 1908, the company carried out an initial and rapid expansion of overseas lines. In the third, after the Russo-Japanese War of 1904 to 1905, NYK began to concentrate more exclusively on regular lines within conferences. This was a conservative strategy that lasted until the late 1950s, when the company started a comprehensive series of services, a move which led to the fourth period, one of diversification, that has continued to the present day.

NYK was formed in 1885 through a merger between the shipping assets of Mitsubishi and the Kyodo Unyu Kaisha (KUK) or Union Transport Company. The Mitsubishi firm had been subsidized by the new Meiji government since 1875, while KUK was an amalgam of trading firms, local shipping enterprises, and government investment that had been motivated by Mitsubishi’s increasing neglect of shipping in favor of outside investments, mostly in mining. NYK was initially a joint-stock company, with more than three-quarters of the steamships in Japan. It spent its first decade consolidating its finances and fleet under government subsidization and regulation. At first most of its routes were domestic. These became less profitable by the early 1890s because of competition from railways and another shipping firm with regional strength in western Japan, the Osaka Shosen Kaisha (OSK).

There were two main forces behind NYK’s expansion in the 1890s. One was the support of the cotton-spinning industry, which enabled NYK to start a line to Bombay in 1893 to import raw cotton. This trade entailed a series of mutual guarantees among the cotton spinners, NYK, and trading firms such as Mitsui Bussan Kaisha, as well as credit to shippers from government-affiliated banks. The second impetus came from greatly increased subsidization made possible by the indemnity Japan received from China after the Sino-Japanese War. This encouraged NYK to establish lines to Australia and Europe, and to Seattle in the United States in 1896. The subsidies were particularly efficacious on the European line, where they gave the company bargaining power to overcome initial opposition from British firms to NYK’s entrance into the Far Eastern Freight Conference, which operated between Europe and East Asia. Generally, lines to India could operate with little or no subsidization, whereas the Seattle line was more dependent. In contrast to the plentiful cargo of the outward-bound silk trade, the inward-bound trans-Pacific route was much less profitable because many manufactured goods from the eastern and southern United States went to Japan via the Suez Canal before the Panama Canal was opened. The European line generated about 40% of the company’s revenue, and was strong on its eastward run because Japan imported much of its machinery. On the westward run, however, Japanese export freight was insufficient, and NYK came to depend on Chinese goods, which it loaded through feeder services in China, with transshipment at Shanghai.

This pattern of expansion changed after the Russo-Japanese War. Domestic business was hurt by recession and the emergence of many new shipowners that had sprung up with the government’s wartime ship purchasing policy. Also, government colonial policy overseas, and hence closer supervision, made feeder lines more problematic, and stricter subsidy legislation encouraged withdrawal from many domestic services and concentration on regular transoceanic lines. This change in strategy occurred in the third period of NYK business. In the years prior to World War I, the company was reluctant to initiate new lines without subsidization unless it had a strong shippers’ network. This it had on the Calcutta line, opened in 1911, but it lacked one on a proposed line through Panama, and the silk export trade remained on the northern route through Seattle. For this reason it held back until subsidies were received early in World War I.

Although NYK earned huge profits during World War I, with government controls over freight rates on subsidized lines, the company exploited the war less effectively than many independent Japanese operators, who carried on tramp services outside of government restrictions. The war and its aftermath opened up new lines for the company, to New York via Panama, to Liverpool, and to Hamburg. The central problem of the interwar years was how to operate this more geographically extensive network with steady growth in the face of increased competition from Japanese firms and the emergence of a much larger U.S. fleet.

The most famous strategic response of NYK during these years was its substantial investment in passenger services. In 1926 it purchased the Pacific operations of the Toyo Kisen Kaisha, which ran mostly to San Francisco, and proceeded to build a series of world-class passenger ships. Decades later, long after NYK had withdrawn from the passenger business, the company’s popular identity was still associated with these vessels. Despite their popularity, the passenger business did represent a specialized version of the already cautious liner strategy and NYK fell behind OSK in introducing express ships on the New York line in the late 1920s. These ships were fast enough to effect a change in the silk trade, from the rail route via northern Pacific ports to the Panama route. NYK was slow to enter the tramp business also, remaining instead primarily within the conference systems. This presented two additional problems linked to the United States. One was U.S. antitrust law, which forbids exclusionary practices of cartels like the Far Eastern Freight Conference. The second was economic, and emerged through the restructuring of many shipping routes in response to changing demand from U.S. trade and industry. With its cautious strategy NYK had difficulty responding to these changes, and by the eve of World War II it was being seriously challenged by OSK for pre-eminence among Japanese shipping firms.

During World War II NYK lost virtually all of its large oceangoing vessels, and its fleet fell from a peak of 866,000 gross tons in 1941 to 155,000 at the end of the war. Under the restrictive economic policies of the early U.S. occupation of Japan, large shipping firms like NYK had three strikes against them: severe limits on the size of ships—6,000 tons, threats of dissolution under corporate deconcentration programs, and prohibitions against private trade. Nevertheless, in the most general sense, the war and occupation had a leveling effect on all shipping firms, and in the long run allowed NYK to recapture the strategic initiative that had been passing to OSK and others, like Mitsui Bussan’s shipping division, before the war.

In the late occupation, the United States began some subsidization through its aid programs, the Korean War effected shipping recovery, and occupation authorities helped Japanese firms re-enter overseas lines and conferences. The event that triggered a transformation in NYK strategy, leading to the fourth period, was known as the “Mitsui Fight.” This was a three-year unsuccessful attempt in the mid-1950s by NYK and OSK, in cooperation with European firms, to keep Mitsui Senpaku KK—Mitsui Bussan’s former division—out of the Far Eastern Freight Conference. All firms suffered in this struggle, but Mitsui survived because of its strength in the tanker business which had supported it during the competition. This realization led NYK to undertake its strategy of diversification, a move accompanied by a restructuring of its business division into three major services—liners, trampers, and tankers.

It was some time, however, before NYK enjoyed the fruits of this strategic change. The 1950s were a difficult time for all Japanese shipping companies, and NYK operated without profit from 1956 to 1965. Two forms of financial consolidation emerged in the 1960s. First, the government encouraged consolidation in the industry, linking a policy of merger with a commitment to increased subsidization. Under this process, six groups emerged to constitute the core of the industry. NYK merged with Mitsubishi Kaiun KK, a former division within Mitsubishi Corporation, while rivals OSK and Mitsui Senpaku joined to form Mitsui O.S.K. Lines, Ltd. The second form of consolidation was technological. The government aided the shift to containerization by aiding firms that formed cooperative container groupings known as the space charter system. This was particularly effective on the Pacific. Earlier, NYK had worked with the Matson Navigation Company of San Francisco to introduce containers, and on the European line, along with Mitsui O.S.K., it established a container consortium with British and German firms called the Trio Group.

NYK also pursued its diversification by building tankers for both oil and ores and developing a fleet of car carriers. These promising beginnings, however, were partially offset by a series of shocks in the early 1970s. These included a revaluation of the Japanese yen and a major strike, both of which increased the cost of Japanese shipping. In addition, the oil crisis entailed both a short-term boom and long-term risk; freight conferences were threatened by flag-preference policies of developing countries—the latter shipped goods on the ships of their own countries wherever possible—supported by the United Nations Conference on Trade and Development (UN-CTAD); and rate-cutting wars on the Pacific undermined profitability there. During this era of crisis for the shipping industry, NYK displayed remarkable strategic adaptability. Its most decisive move was a partial withdrawal in 1975 from the tanker business, to the point of canceling contracts on some ships already under construction, even though this business was still very profitable. The wisdom of this decision was borne out in the 1980s when several Japanese firms that had continued to pursue the oil tanker boom went bankrupt. Meanwhile, NYK continued to diversify, ordering liquefied natural gas (LNG) tankers and a larger fleet of car carriers to service the growing exports of automobiles to North America. With its still profitable base in conferences systems, these moves gave NYK a balanced business profile that enabled it to remain the largest and generally most profitable Japanese shipping firm into the early 1990s.

During its first half-century, NYK’s largest stockholders were the Mitsubishi zaibatsu — family-owned enterprise group—and the Imperial Household Ministry, whose shares had been transferred from the Finance Ministry in the late 1880s. Most of the leading managers in the early NYK came from Mitsubishi. During its era of expansion, however, because most of its shippers were outside the Mitsubishi zaibatsu, NYK was able to conduct a relatively autonomous management. As a ship purchaser, it also played an important role in the development of Mitsubishi Heavy Industries, Ltd. During the occupation, all zaibatsu -related shareholding was broken up and NYK stock became widely dispersed for the next decade. Following the reorganization of the industry in 1964, Mitsubishi firms quickly began to purchase NYK shares so that by the 1970s they controlled about 30%. Likewise, NYK holds substantial shares in numerous Mitsubishi companies and is a full member of the present Mitsubishi Group.

Through its earlier era of expansion NYK had been led by its president, Rempei Kondo. During World War I, however, he began to lose control of the firm as internal disputes arose over capital stock increases and dividend policy, and several executives resigned. After his death in 1921 the company suffered labor problems involving a split between shore and sea employees, and many more executives left. Consequently, over the next decade NYK presidents came from outside the company to restore order. The most important of these was Kenkichi Kagami, the chairman of The Tokio Marine and Fire Insurance Company, another member of the Mitsubishi zaibatsu. Serving from 1929 to 1935, Kagami was known as an economizer and was reluctant to invest in the new express ships for the New York line. Managerially, his key contribution was to promote NYK career managers from within. Since then, all NYK presidents have risen from within the company.

In the postwar period, perhaps the most effective of these presidents was Shojiro Kikuchi—president from 1971 to 1978 and chairman from 1978 to 1984. As a junior executive in the 1950s he played a key role in company strategy, particularly in the era of changes that followed the Mitsui Fight and in the container arrangement with the Matson Line. Something of an intellectual, Kikuchi worked closely with the company’s Research Chamber in anticipating long-term changes in the country’s industrial structure. This vision gave him the courage in 1975 to override the almost unanimous opposition of his executives and cut back on tanker operations.

NYK has been able to finance some of its new investments from its own capital. This marks a shift from its heavy reliance on subsidies and loans in the 25 years after the occupation. In the early years of its expansion, up to about 1910, NYK’s main source of financing was subsidies. Thereafter reserves grew rapidly and they became a key source of funds until the 1920s. After World War I, however, the company allowed money to flow out of the firm in excessive dividends. For the remainder of the interwar years it relied on bonds and loans.

Financially, the major shock to the Japanese shipping industry in the 1980s was the doubling of the value of the yen against the U.S. dollar between 1985 and 1987. Since so much freight is denominated in dollars, this meant a substantial reduction in income. NYK responded to this crisis in three ways: retrenchment, diversification, and broadening of its base in shipping, in which it still holds a comparative advantage. Perhaps the key measure under the retrenchment strategy was to spin off internal functions such as accounting and information systems as new subsidiaries. Between 1987 and 1991 this helped to reduce the number of company employees by 30%. The wide range of the company’s diversification is best typified by two firms that began operations in the 1980s. One, Nippon Cargo Airlines, is a joint venture of NYK, several shipping firms, and an airline, and was established to preserve market share in what is increasingly miniaturized cargo. The other, Crystal Cruises, Inc. a wholly owned subsidiary registered in Los Angeles, is NYK’s entry into the luxury cruise market.

What profits NYK earned in the first few years after the 1985 to 1987 yen shock came from another form of diversification, financial subsidiaries and other financial investments, not from shipping operations themselves. In the late 1980s, however, increases in freight rates sparked a business recovery in the shipping industry, a trend that NYK itself was well prepared for with its expanded investments in transportation infrastructure. Since its 100th anniversary in 1985, the company has taken to calling itself a “mega-carrier,” a term that symbolizes its global network of multi-modal transport and the broad logistical capability to integrate shippers and cargo movement. Much of this effort has concentrated on new computerized information systems. Business of this sort also is being spun off in the form of new subsidiaries.

One trend that has emerged in 1991, perhaps only in embryonic form, is that the presidents of some of these new subsidiaries, who are themselves former NYK career employees, have been appointed to the company’s board of directors. This is a department from the pattern of most of the postwar period, when the board was composed almost exclusively of executives from within NYK itself. These strategies, therefore, may change the company’s structure to reflect the broadening base of company operations. Most of these subsidiaries, however, still support shipping itself. This suggests that, in contrast to the pattern of diversification followed by British shipping firms, where shipping operations have shrunk to a small portion of their overall business, NYK is not moving far from its core business of shipping.

Principal Subsidiaries

Shinwa Kaiun (27%); Tokyo Senpaku (37%); Taiheiyo Kaiun (25%); Kyoei Tanker (30%); Yusen Real Estate Corporation; Hikawa Shoji Kaisha (67%); Yusen Air & Sea Service (77%); Yusen Accounting & Finance; NYK Systems Research Institute; NYK International Luxemburg S.A. (Luxembourg); Nippon Cargo Airlines (11%); Crystal Cruises, Inc. (U.S.A.).

Nippon Yusen Kabushiki Kaisha (NYK)

views updated May 23 2018

Nippon Yusen Kabushiki Kaisha (NYK)

Yusen Building
3-2 Marunouchi 2-chome
Chiyoda-ku, Tokyo 100-0005
Japan
Telephone: (3) 3284-5151
Fax: (3) 3284-6361
Web site: http://www.nykline.com

Public Company
Incorporated: 1885 as Nippon Yusen Kaisha
Employees: 1,739
Sales: ¥1.6 trillion ($14.95 billion) (2005)
Stock Exchanges: Tokyo Osaka Nagoya
Ticker Symbol: 9101
NAIC: 483111 Deep Sea Freight Transportation; 488320 Marine Cargo Handling; 488510 Freight Transportation Arrangement

Nippon Yusen Kabushiki Kaisha (NYK) is the largest marine transporter in Japan. The company has 615 vessels in its arsenal and provides liner service, tramps, specialized carriers, and tankers. Through nearly 500 subsidiaries, NYK also offers services related to terminal and harbor transport, cruise lines and travel, logistics services, tugboat operations, and air transport. Shipping accounts for just over 60 percent of company revenues while logistics brings in 20 percent. NYK's terminal and harbor transport, shipping-related services, cruise, and real estate operations are responsible for the remaining portion of revenues. The history of NYK's business operations can be divided into four periods. The first marks the company's establishment in 1885 and consolidation over the next decade. In the second, from the mid-1890s to around 1908, the company carried out an initial and rapid expansion of overseas lines. In the third, after the Russo-Japanese War of 1904 to 1905, NYK began to concentrate more exclusively on regular lines within conferences. This was a conservative strategy that lasted until the late 1950s, when the company started a comprehensive series of services, a move which led to the fourth period, one of diversification and expansion, that continued into the new millennium.

Early History

NYK was formed in 1885 through a merger between the shipping assets of Mitsubishi and the Kyodo Unyu Kaisha (KUK) or Union Transport Company. The Mitsubishi firm had been subsidized by the new Meiji government since 1875, while KUK was an amalgam of trading firms, local shipping enterprises, and government investment that had been motivated by Mitsubishi's increasing neglect of shipping in favor of outside investments, mostly in mining. NYK was initially a joint-stock company, with more than three-quarters of the steamships in Japan. It spent its first decade consolidating its finances and fleet under government subsidization and regulation. At first most of its routes were domestic. These became less profitable by the early 1890s because of competition from railways and another shipping firm with regional strength in western Japan, the Osaka Shosen Kaisha (OSK).

There were two main forces behind NYK's expansion in the 1890s. One was the support of the cotton-spinning industry, which enabled NYK to start a line to Bombay in 1893 to import raw cotton. This trade entailed a series of mutual guarantees among the cotton spinners, NYK, and trading firms such as Mitsui Bussan Kaisha, as well as credit to shippers from government-affiliated banks. The second impetus came from greatly increased subsidization made possible by the indemnity Japan received from China after the Sino-Japanese War. This encouraged NYK to establish lines to Australia and Europe, and to Seattle in the United States in 1896. The subsidies were particularly efficacious on the European line, where they gave the company bargaining power to overcome initial opposition from British firms to NYK's entrance into the Far Eastern Freight Conference, which operated between Europe and East Asia. Generally, lines to India could operate with little or no subsidization, whereas the Seattle line was more dependent. In contrast to the plentiful cargo of the outward-bound silk trade, the inward-bound trans-Pacific route was much less profitable because many manufactured goods from the eastern and southern United States went to Japan via the Suez Canal before the Panama Canal was opened. The European line generated about 40 percent of the company's revenue, and was strong on its eastward run because Japan imported much of its machinery. On the westward run, however, Japanese export freight was insufficient, and NYK came to depend on Chinese goods, which it loaded through feeder services in China, with trans-shipment at Shanghai.

This pattern of expansion changed after the Russo-Japanese War. Domestic business was hurt by recession and the emergence of many new shipowners that had sprung up with the government's wartime ship purchasing policy. Also, government colonial policy overseas, and hence closer supervision, made feeder lines more problematic, and stricter subsidy legislation encouraged withdrawal from many domestic services and concentration on regular transoceanic lines. This change in strategy occurred in the third period of NYK business. In the years prior to World War I, the company was reluctant to initiate new lines without subsidization unless it had a strong shippers' network. This was available on the Calcutta line, opened in 1911, but it lacked one on a proposed line through Panama, and the silk export trade remained on the northern route through Seattle. For this reason it held back until subsidies were received early in World War I.

The most famous strategic response of NYK during these years was its substantial investment in passenger services. In 1926 it purchased the Pacific operations of the Toyo Kisen Kaisha, which ran mostly to San Francisco, and proceeded to build a series of world-class passenger ships. Decades later, long after NYK had withdrawn from the passenger business, the company's popular identity was still associated with these vessels. Despite their popularity, the passenger business did represent a specialized version of the already cautious liner strategy and NYK fell behind OSK in introducing express ships on the New York line in the late 1920s. These ships were fast enough to effect a change in the silk trade, from the rail route via northern Pacific ports to the Panama route. NYK was slow to enter the tramp business also, remaining instead primarily within the conference systems. This presented two additional problems linked to the United States. One was U.S. antitrust law, which forbids exclusionary practices of cartels like the Far Eastern Freight Conference. The second was economic, and emerged through the restructuring of many shipping routes in response to changing demand from U.S. trade and industry. With its cautious strategy NYK had difficulty responding to these changes, and by the eve of World War II it was being seriously challenged by OSK for pre-eminence among Japanese shipping firms.

Surviving the Postwar Era

During World War II NYK lost virtually all of its large oceangoing vessels, and its fleet fell from a peak of 866,000 gross tons in 1941 to 155,000 at the end of the war. Under the restrictive economic policies of the early U.S. occupation of Japan, large shipping firms like NYK had three strikes against them: severe limits on the size of ships to 6,000 tons, threats of dissolution under corporate deconcentration programs, and prohibitions against private trade. Nevertheless, in the most general sense, the war and occupation had a leveling effect on all shipping firms, and in the long run allowed NYK to recapture the strategic initiative that had been passing to OSK and others, like Mitsui Bussan's shipping division, before the war.

In the late occupation, the United States began some subsidization through its aid programs, the Korean War affected shipping recovery, and occupation authorities helped Japanese firms re-enter overseas lines and conferences. The event that triggered a transformation in NYK strategy, leading to the fourth period, was known as the "Mitsui Fight." This was an unsuccessful three-year attempt in the mid-1950s by NYK and OSK, in cooperation with European firms, to keep Mitsui Senpaku KK—Mitsui Bussan's former division—out of the Far Eastern Freight Conference. All firms suffered in this struggle, but Mitsui survived because of its strength in the tanker business which had supported it during the competition. This realization led NYK to undertake its strategy of diversification, a move accompanied by a restructuring of its business division into three major services—liners, trampers, and tankers.

Company Perspectives:

Through safe and dependable monohakobi (transport), we contribute to the betterment of societies throughout the world as a comprehensive global logistics enterprise offering ocean, land, and air transportation.

NYK also pursued its diversification by building tankers for both oil and ores and developing a fleet of car carriers. These promising beginnings, however, were partially offset by a series of shocks in the early 1970s. These included a revaluation of the Japanese yen and a major strike, both of which increased the cost of Japanese shipping. In addition, the oil crisis entailed both a short-term boom and long-term risk. Freight conferences were threatened by flag-preference policies of developing countries—the latter shipped goods on the ships of their own countries wherever possible—supported by the United Nations Conference on Trade and Development (UNCTAD), and rate-cutting wars on the Pacific undermined profitability there. During this era of crisis for the shipping industry, NYK displayed remarkable strategic adaptability. Its most decisive move was a partial withdrawal in 1975 from the tanker business, to the point of canceling contracts on some ships already under construction, even though this business was still very profitable. The wisdom of this decision was borne out in the 1980s when several Japanese firms that had continued to pursue the oil tanker boom went bankrupt. Meanwhile, NYK continued to diversify, ordering liquefied natural gas (LNG) tankers and a larger fleet of car carriers to service the growing exports of automobiles to North America. With its still profitable base in conferences systems, these moves gave NYK a balanced business profile that enabled it to remain the largest and generally most profitable Japanese shipping firm into the early 1990s.

During its first half-century, NYK's largest stockholders were the Mitsubishi zaibatsu (family-owned enterprise group) and the Imperial Household Ministry, whose shares had been transferred from the Finance Ministry in the late 1880s. Most of the leading managers in the early NYK came from Mitsubishi. During its era of expansion, however, because most of its shippers were outside the Mitsubishi zaibatsu, NYK was able to conduct a relatively autonomous management. As a ship purchaser, it also played an important role in the development of Mitsubishi Heavy Industries, Ltd. During the occupation, all zaibatsu -related shareholding was broken up and NYK stock became widely dispersed for the next decade. Following the reorganization of the industry in 1964, Mitsubishi firms quickly began to purchase NYK shares so that by the 1970s they controlled about 30 percent. Likewise, NYK held substantial shares in numerous Mitsubishi companies and was a full member of the present Mitsubishi Group.

Through its earlier era of expansion NYK had been led by its president, Rempei Kondo. During World War I, however, he began to lose control of the firm as internal disputes arose over capital stock increases and dividend policy, and several executives resigned. After his death in 1921 the company suffered labor problems involving a split between shore and sea employees, and many more executives left. Consequently, over the next decade NYK presidents came from outside the company to restore order. The most important of these was Kenkichi Kagami, the chairman of The Tokio Marine and Fire Insurance Company, another member of the Mitsubishi zaibatsu . Serving from 1929 to 1935, Kagami was known as an economizer and was reluctant to invest in the new express ships for the New York line. Managerially, his key contribution was to promote NYK career managers from within. Since then, all NYK presidents have risen from within the company.

In the postwar period, perhaps the most effective of these presidents was Shojiro Kikuchi who was president from 1971 to 1978 and chairman from 1978 to 1984. As a junior executive in the 1950s he played a key role in company strategy, particularly in the era of changes that followed the Mitsui Fight and in the container arrangement with the Matson Line. Something of an intellectual, Kikuchi worked closely with the company's Research Chamber in anticipating long-term changes in the country's industrial structure. This vision gave him the courage in 1975 to override the almost unanimous opposition of his executives and cut back on tanker operations.

NYK was able to finance some of its new investments from its own capital. This marked a shift from its heavy reliance on subsidies and loans in the 25 years after the occupation. In the early years of its expansion, up to about 1910, NYK's main source of financing was subsidies. Thereafter reserves grew rapidly and they became a key source of funds until the 1920s. After World War I, however, the company allowed money to flow out of the firm in excessive dividends. For the remainder of the interwar years it relied on bonds and loans.

Overcoming Challenges in the 1980s

Financially, the major shock to the Japanese shipping industry in the 1980s was the doubling of the value of the yen against the U.S. dollar between 1985 and 1987. Since so much freight is denominated in dollars, this meant a substantial reduction in income. NYK responded to this crisis in three ways: retrenchment, diversification, and broadening of its base in shipping, in which it held a comparative advantage. Perhaps the key measure under the retrenchment strategy was to spin off internal functions such as accounting and information systems as new subsidiaries. Between 1987 and 1991 this helped to reduce the number of company employees by 30 percent. The wide range of the company's diversification was best typified by two firms that began operations in the 1980s. One, Nippon Cargo Airlines, was a joint venture of NYK, several shipping firms, and an airline, and was established to preserve market share in what was increasingly miniaturized cargo. The other, Crystal Cruises, Inc. a wholly owned subsidiary registered in Los Angeles, was NYK's entry into the luxury cruise market.

Key Dates:

1885:: Nippon Yusen Kaisha (NYK) is formed through a merger between the shipping assets of Mitsubishi and the Kyodo Unyu Kaisha (KUK) or Union Transport Company.
1926:: The company purchases the Pacific operations of the Toyo Kisen Kaisha, which runs mostly to San Francisco, California.
1975:: NYK partial withdrawals from the tanker business.
1987:: By now, the value of the yen has doubled against the U.S. dollar leading to major losses in income.
1998:: NYK merges with Showa Line Ltd.
2003:: A new management plan, NYK 21 "Forward 120," is launched.
2005:: The company posts record profits and earnings.

What profits NYK earned in the first few years after the 1985 to 1987 yen shock came from another form of diversification, financial subsidiaries and other financial investments, not from shipping operations themselves. In the late 1980s, however, increases in freight rates sparked a business recovery in the shipping industry, a trend that NYK itself was well prepared for with its expanded investments in transportation infrastructure. Since its 100th anniversary in 1985, the company took to calling itself a "mega-carrier," a term that symbolized its global network of multi-modal transport and the broad logistical capability to integrate shippers and cargo movement. Much of this effort concentrated on new computerized information systems. Business of this sort also was being spun off in the form of new subsidiaries.

One trend that emerged in 1991 was that the presidents of some of these new subsidiaries, who were themselves former NYK career employees, were appointed to the company's board of directors. This was a departure from the pattern of most of the postwar period, when the board was composed almost exclusively of executives from within NYK itself. These strategies, therefore, had the potential to change the company's structure to reflect the broadening base of company operations. Most of these subsidiaries, however, supported shipping itself. This suggested that, in contrast to the pattern of diversification followed by British shipping firms, where shipping operations have shrunk to a small portion of their overall business, NYK was not moving far from its core business of shipping.

NYK in the 1990s and Beyond

NYK battled intense competition, a slowdown in international trade, a weak domestic economy, and a strong yen throughout much of the 1990s. During this time period, the Japanese shipping industry was changing dramatically. Competitors from Taiwan, South Korea, China, and Hong Kong began to secure large portions of the shipping market. High costs in Japan were forcing NYK and its competitors to reflag their ships and hire foreign seamen. In fact, the Japanese Shipowners Association predicted that the number of Japanese-flagged ships would decline to less than 100 by 2000—there were 1,028 in 1985. At the same time, Japanese exporters began building their factories overseas, thus eliminating a major source of business for Japanese shipping companies.

In 1997 NYK's tanker, the Diamond Grace, ran aground and ruptured three of its tanks. The accident spilled 10,000 bbl of crude oil into Tokyo Bay. Determined to remain Japan's largest marine transporter, NYK forged ahead despite the harsh operating conditions. In 1998, NYK merged with Showa Line Ltd., leaving Japan with four major shipping companies—NYK, Mitsui OSK Lines, Kawasaki Kisen Kaisha, and Navix. As a result of the merger, NYK operated 535 ships. The company established a handful of new subsidiaries over the next several years including e-JAN Co. Ltd., NYK Logistics China, NYK Logistics Europe, and Singapore-based NYK Ship Management Co. Ltd.

During the early years of the 21st century, NYK positioned itself as a megacarrier offering global logistics over sea, land, and air. In 2001, the company adopted a new corporate logo. Two years later it launched a new strategic plan entitled, NYK 21 "Forward 120." As part of its revamped vision, the company focused on expanding its shipping segment, which accounted for nearly 60 percent of its annual revenues. It looked to increase its fleet of vessels for the bulk/energy resources transportation market. NYK also eyed service development in logistics as crucial for future growth. That segment accounted for approximately 20 percent of total revenues in 2004, and NYK hoped to tap into a greater share of the logistics market. Its strategy included providing logistics services to the automobile industry, to electronics and other manufacturers, and to and retailers. By expanding its reach in China, Asia, and Europe, NYK aimed to increase its profits in this business segment. "Forward 120" was also heavily focused on corporate social responsibility (CSR). NYK pledged to promote environmentally-friendly activities while providing safe and reliable transportation.

NYK's responses to the changes in Japan's shipping industry left it in an enviable position among its competitors. In 2004 and 2005, the company posted record profits and revenues, as demand for its shipping services increased. NYK expected its good fortunes to continue in the years to come due to its cost cutting efforts as well as its ability to secure lucrative international contracts. In 2004, the company signed a three-year shipping contract with International Paper Company to transport wood chips from Brazil to the United States.

Principal Subsidiaries

NYK Global Bulk Corporation; Tokyo Senpaku Kaisha Ltd.; NKY-Hinode Line Ltd.; Kinkai Yusen Logistics Co. Ltd.; Hachiuma Steamship Co. Ltd.; Asahi Shipping Co. Ltd.; NYK Bulkship Europe Ltd.; Albireo Maritima S.A.; NYK Line North America Ltd.; NYK Line Europe Ltd.; UNI-Z Corp.; Geneq Corporation; Nippon Container Terminals Co. Ltd.; Nippon Container Yuso Co. Ltd.; Asahi Shipping Co. Ltd.; Yusen Terminals Inc.; NYK Terminals North America Inc.; NYK Cruise Co. Ltd.; Crystal Cruises Inc.; Yusen Air & Sea Service Co. Ltd.; JIT Corp.; Yusen Koun Co. Ltd.; Asahi Shipping Co. Ltd.; GST Corporation; NKY Logistics UK Manufacturing & Retail Ltd.; Yusen Air & Sea Service USA Inc.; Nippon Kaiyosha Ltd.; NKY Trading Corp.; Sanyo Trading Co. Ltd.; Yusen Real Estate Corporation; NYK Systems Research Institute; Yusen Travel Co. Ltd.; NYK Trading Corp.; Nippon Cargo Airlines Co. Ltd.