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Staff writer

Although recession is clouding the economic landscape, the nation’s major maritime transport carriers — through such means as realignment — are hoping to beef up their nonliner operations and sail into non-Japanese markets.

Effective Thursday, Mitsui O.S.K. Lines, the country’s second-largest marine carrier, will merge with Navix Line Ltd., the fourth-biggest, creating a fleet of some 500 vessels. Their combined sales in fiscal 1997 came to 709.7 billion yen.

The latest merger follows the takeover last October of Showa Line Ltd. by Nippon Yusen K.K., the nation’s top maritime carrier, in a move that rescued the ailing Showa, which was saddled with 28.5 billion yen in accumulated debts.

The takeover left Nippon Yusen with a fleet of about 560 vessels. Combined sales of the two firms reached 706.6 billion yen in fiscal 1997.

The two mergers will reduce the country’s five major ocean carriers to three — Nippon Yusen, Mitsui O.S.K. and Kawasaki Kisen Kaisha Ltd.

Through the consolidation, both Mitsui O.S.K. and Nippon Yusen have been focusing on expanding their productive nonliner business, a main pillar of operations that involves transporting energy and raw materials. This sector, usually based on long-term contracts, is a dependable source of stable income.

“Business opportunities lie in the nonliner sector. As the global environment rapidly changes, it is natural to think that having business of a certain scale is essential to be a core operator in the global market,” said Takao Kusakari, managing director of Nippon Yusen.

In addition to taking over Navix Line clients, Akimitsu Ashida, managing director of Mitsui O.S.K., stressed that the synergetic effects of the merger would enable his carrier to save 10 billion yen by cutting costs for such items as fuel and insurance, as well as by increasing the operating efficiency of its vessels.

Meanwhile, Kawasaki Kisen is opting to go its own way, denying speculation that the country’s third-largest carrier, with sales of 379.6 billion yen in fiscal 1997, will seek a partner to catch up with Nippon Yusen and Mitsui O.S.K. in terms of business volume.

“Mergers are not on our agenda. What we are pursuing is efficiency, not (large) scale,” said Yasuhide Sakinaga, senior managing director at Kawasaki Kisen. “A big player is not necessarily a low-cost player in the nonliner sector.”

Sakinaga stressed that his firm has improved cost-efficiency through its structural reform plan and can compete against the other two with its cost-effectiveness.

In addition, Sakinaga pointed out the difficulty Japanese companies face in boosting cost-efficiency at a time of mergers and acquisitions because they are traditionally reluctant to lay off employees and often end up bloated.

The expansion of the nonliner sector will enable carriers to cover losses from the unprofitable liner sector, the other main pillar of maritime services.

Excessive price-cutting in the liner sector, which mainly involves container cargoes, has severely hurt international maritime carriers over the past several years.

“The strategy of expanding the nonliner sector is one in the right direction on a short-term basis,” said Masahiro Kubo, senior analyst at the Daiwa Institute of Research, referring to existing long-term contracts.

But the users of nonliner services, such as power companies, are undergoing deregulation, and the threat of shrinking profits may affect the favorable contract terms carriers are currently enjoying when the time comes to renew them, Kubo pointed out.

“The mergers will enhance domestic competition in the future, because, in principle, the nonliner sector involves business with Japanese firms. (To survive competition), carriers need to offer quality service with cost-effective vessels,” Kubo said.

With a dismal future projected for the liner sector, carriers are increasingly taking the view that most growth will take place in nonliner cross-trade services — where cargo is traded between countries outside of Japan.

For example, China is importing more oil and constructing ports that can handle large tankers, and oil imports in the United States are also rising, Ashida noted.

Also, with environmental awareness on the rise, trade in environmentally friendly energy sources such as liquefied natural gas is expected to grow in the future. “We have to actively advance into cross-trading. The recession in Japan will continue into the next fiscal year. We must slim down while the economy is severe, and when it recovers, we will take action toward (boosting) cross-trade,” Kusakari said.

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