These are tough days for container shipping, with most of the major lines reporting losses, struggling with overcapacity and trying, with varying degrees of success, to push rates back to sustainable levels. Sailing against the winds of the market is particularly difficult when moving thousands of boxes is almost always likely to come down to who will do it cheaper.
Japan’s NYK Group, which lost ¥33.2 billion ($42m) in the financial year 2012, appears to understand these difficulties. Besides attempts to reduce the capacity it owns, it has targeted more revenue in contract logistics and freight forwarding, areas that fall under its Yusen Logistics division, which has recently completed a global restructuring that brought together NYK Logistics and Yusen Air and Sea. NYK’s logistics business booked a profit of ¥9 billion last year on revenue of ¥397 billion. In the first quarter of fiscal year 2012, revenue fell around 7% but profits were stable at ¥1.2 billion.
This past summer, the company’s president, Yasami Kudo, revealed that the group was aiming to more than double Yusen Logistics’ annual revenue over the next seven years to ¥800 billion, including a significant expansion of automotive business, particularly in Asia.
But where does the European automotive industry fit into this ambition, given the prospects for recession and a fifth straight year of falling car sales? Reflecting part of the sector’s contradictions, with declines in southern Europe and at most leading brands, but strong production for premium cars and exports, Yusen Logistics Europe has enjoyed “good growth” in automotive over the past 18 months, according to Michael Storey, business development director for Europe.
At around €150m ($185m) per year, Yusen Logistics’ automotive offering currently represents around 20-25% of the company’s €700m annual European revenue. It has expanded thanks to resilient production for customers in the UK, notably Nissan and Bentley, as well as expanding work on the continent with other Volkswagen Group companies such as Audi and Skoda. “We’re also currently bidding with the core VW brand for a number of business segments,” revealed Storey.
That is part of the reason why Yusen Logistics Europe, despite the growing difficulties in the region, has targeted growth of around 25-30% in automotive over the next three years, he said.
Growing in freight forwarding
Yusen Logistics now manages its businesses across the wider continent rather than by country or regional groupings, as prior. The new structure, which created a pan-European remit for Storey around the start of 2011, reflects the provider’s aim of a more combined network across regions and sectors, as well as a specific focus on growing its freight forwarding capabilities (the primary capabilities which come from the Yusen Air and Sea side of the restructuring), where cargo could be coordinated both across NYK’s container shipping assets as well as across sectors for transport and warehousing.
For automotive at least, freight forwarding is still a relatively small part of Yusen Logistics’ business in Europe. According to Storey, around 75% of the company’s automotive revenue here is in contract logistics for pre-manufacturing, including freight consolidation, crossdocking, warehousing and less-than-truckload transport. The remaining 25% is split between air and ocean freight forwarding as well as for aftermarket logistics.
“While [freight forwarding and aftermarket] are the minor parts of our current business, both are of great interest going forward, as they are areas in which we have less penetration,” said Storey.
Some of these activities are already included in contract logistics for Europe, but Storey said that global trends in complete knockdown kit (CKD) production offer the opportunity for a provider such as Yusen.
“We’re trying to find avenues where we can promote some kind of added value on the back of different modes,” he said. “Our offering of a container from A to B is the same as anyone else, but it’s adding value on either end that counts, and that is particularly important for us in packing and moving CKD kits or even putting finished cars in containers.”
Storey suggested that CKD could involve rail, revealing that Yusen Logistics has received several enquiries about using rail from Europe to Russia and to China using the Trans-Siberian railway.
“For us the Europe-Asia rail link is interesting since, being an Asia-based company, we believe we are well placed to arrange the freight coming back on the return leg to Europe,” he said.
He also said that the company does not necessarily expect a decline in contract logistics’ share of automotive. Pre-manufacturing remains the fastest growing segment, driven by central and southeast Europe, including OEMs and tier suppliers in the Czech Republic, Poland and Turkey.
Outsourcing the aftermarket
Storey also believes that the European aftermarket will present more opportunities for Yusen. It won a contract earlier this year to distribute aftermarket parts for BMW in Benelux. But beyond transport moves, he questioned whether more competition from independent and wholesale parts distributors, coupled with a rise in vehicle quality that has lowered repairs, could lead OEMs to reconsider how much of the aftermarket supply chain they run and own themselves, including warehouses.
“You’ve got this increasingly diverse market of parts suppliers and independent garage networks, which are taking volume away from the traditional dealership model,” he said. “Perhaps now OEMs are seeing they have this huge warehouse and they can’t make it pay anymore, and they’ll start thinking they should outsource it to a provider, who uses half of it to store refrigerators or fashion items.”
While he admits that Yusen Logistics has yet to see OEMs outsourcing their European warehouse operations on a large scale, he suggested that some manufacturers might be struggling to use their available capacity. He pointed to one motorcycle manufacturer in the UK that is now even moving more expensive commodities – such as oil – through its warehouses in an effort to fill the volume.
Options in Russia and Turkey
Yusen Logistics Europe is also looking at opportunities in Russia and Turkey. Yusen will need to move fast in Russia, Storey thinks, because its current business there is mainly importing components from Western Europe to support production in Russia, a trade flow that he anticipates will change dramatically in the next 18-36 months because of Russia’s industrial policy decree 166, which gives preferred import duty rates to manufacturers who meet production and localisation targets.
“We have to be careful about changing our bag in Russia, because we’re doing something that is good now but might not be so good in future,” he said. “There are going to be a lot of opportunities in the supply base coming up.”
Another important growth area is Turkey. During the summer Yusen Logistics set up a subsidiary in the country based in Istanbul, called Yusen Logistics Turkey Lojistik Hizmetleri Limited Sirketi, citing automotive as customer group (see feature on Turkey on p34 for more).
While Yusen’s growth targets in Europe are ambitious given the macro-economic climate, it does not appear willing to trade revenue for profit. Storey has put the stress on value-added activities for automotive that would dovetail with freight forwarding and NYK’s shipping assets such as CKD for some locations, or even for project cargo, including new factories being built in Mexico. Pure volume freight forwarding, it would seem, is not an objective.
“We won’t compete with other freight forwarders in automotive to just move 30,000 containers, unless we wanted to dilute our profits,” said Storey.