July 2 (Bloomberg) -- Nippon Yusen K.K., Japan’s largest shipping line, intends to double sales at logistics operations as global overcapacity depresses rates at sea-cargo units.
President Yasumi Kudo said freight-forwarding and warehousing businesses led by unit Yusen Logistics Co. will boost sales to 800 billion yen ($10 billion) within seven years. Revenue at these operations, which bring profit margins of about 3 percent, may climb to 1 trillion yen, he said in a June 29 interview in Tokyo, without giving a timeframe.
“We have a chance to make more money through logistics than shipping,” he said. “Margins are small, but stable.”
The Tokyo-based company also intends to expand its car-hauling business, particularly in Thailand, after its container-ship unit had losses in two of the past three years. Nippon Yusen has boosted cooperation with other container lines after price wars and excess capacity caused industrywide losses last year.
“It is a good strategy to have the forwarding business to balance out the container-related operations,” said Ryota Himeno, a Tokyo-based Barclays Plc analyst, who has an overweight rating on Nippon Yusen. “Still, it will be tough to reach 10 percent growth every year.”
The shipping company, which also has a cargo airline, liquid natural gas vessels and cruise ships, made a net loss of 72.8 billion yen in the year ended March 31. The container line made a current loss of 44.8 billion yen, while the logistics business had a current profit of 9.3 billion yen, according to data compiled by Bloomberg.
This fiscal year, the company expects an operating profit of 50 billion yen, about triple that forecast by Mitsui O.S.K. Lines Ltd., Japan’s second-largest shipping line by sales.
Nippon Yusen rose 2.4 percent to 214 yen at the 3 p.m. close of trading in Tokyo today, the biggest gain in two weeks. It has climbed 8.6 percent this year, compared with a 4 percent decline for Mitsui O.S.K.
“Our biggest concern is the container market,” Kudo said. “Another slide into the red could send us into a tailspin.”
Auto Parts Demand
A key focus in bolstering Nippon Yusen’s logistics business will be auto parts because of the growth of automaking in Asia, Kudo said. The company is particularly targeting Thailand as Japanese automakers move production to the country because of lower wages and the strengthening yen, as well as China, India and Indonesia, he said. Local auto production will increase 44 percent to 2.1 million units this year, according to Thailand’s Office of Industrial Economics.
“Demand for cars in Asia is booming,” Kudo said. “Intra-Asia trade is by far the biggest growth market now.”
Yusen Logistics operates facilities in 37 countries, offering services including storage, repackaging and inventory management, according to its website.
The shipping line in December agreed to cooperate on Asia-Europe container-shipping routes with five other lines through the merger of two previous alliances as they coped with an increase in carrying capacity.
The company and its partners currently have 11 container ships serving Europe on a 77-day loop, which could increase to 13 vessels over 91 days, Kudo said.
Nippon Yusen may slow the speed of its container ships next year as it starts to receive the first vessels capable of carrying 13,000 20-foot containers, which may put further pressure on shipping rates, Kudo said.
“The new engines on the vessels allow us to run them at slower speeds than the first generation of super-large container ships,” he said. “It could help cut fuel costs and give us a competitive edge over earlier ships.”
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