Japan Freight Transport Report Q3 2007: Industry Research Report

Japan Freight Transport Report Q3 2007

Published Date: August 2007

Published By: Business Monitor International

Page Count: 45

Order Code: R302-1475

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Nippon Yusen Kabushiki Kaisa (NYK), one of the world’s largest shipping companies, has been sailing
through difficult market conditions, though there are now signs of a recovery. NYK, the nation's largest
shipping company, said its group net profit for the three months ending in December 2006 fell 31%, hurt
in part by higher fuel costs. NYK plans to boost its fleet from 742 ships to 796 between now and March
2008, mainly with more bulkers. The company is predicting its pre-tax profit before extraordinary items
will rise for the first time in three years during the current fiscal year to 31 March 2007, with liner
operations in particular showing an improvement. Investment bank UBS recently hiked its price targets
for Japan's three major shipowners on the back of renewed optimism for the liner, dry-bulk and carcarrier
sectors. BMI’s Japan Freight Transport Report acknowledges that there have been signs of
weakness in global shipping markets, with the big increases in capacity beginning to lead to oversupply
and falling rates. But we still think there will be a relatively soft-landing rather than a crash in the
industry. We are forecasting average annual growth of maritime freight carried at a rate of 3.0% over the
2007-2011 five-year forecast period.

Our Japanese shipping forecast is based on various factors. Among them, the Japanese recovery should
continue at a moderate but still significant rate. We forecast average annual GDP growth of 2.2% over the
next five years, after 1.7% in the preceding five. Companies like NYK and its competitors are well
organised and able to adapt: NYK, for example, is introducing a series of energy-saving programmes and
restructuring to offer clients an integrated global logistics service. In addition, Japan’s commodity
imports, manufactured exports, and growing trade with China underpin expected maritime freight
demand.

That said, we are relatively cautious over freight turnover forecasts for other transport modes. High petrol
prices, although coming down, have exerted a dampening effect on road haulage volumes. Fuel prices and
safety concerns are also holding back airfreight, but Japanese airports are beginning to reduce landing
fees. As a result of these adjustments, we now expect average annual growth in total freight turnover to be
2.5% over the 2007-2011 period. The operating environment is good, but not spectacular. Japan has a
composite score of 44.0 out of a potential total of 70.0 in our freight transport business environment
rating. This places it just below the average score for the region as a whole (44.8). Japan scores highly for
long-term economic and political risk, transport infrastructure growth and for the regulatory and
competitive environment. But its overall score is lowered, due to weaker performances for freight growth
and on the transport intensity index, which is a measure of foreign-trade dynamism. This is not unusual
for a more developed economy like Japan, where growth rates are much more moderate.
For the 2007-2011 forecast period, we expect the transport and communications sector to outpace the
economy as a whole. It will achieve average annual growth of 2.3%, versus 2.2% for overall GDP. The
total value of transport and communications GDP will rise to US$321.4bn in nominal terms by 2011,
representing 6.3% of Japan’s GDP.

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