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January 04, 2012

MOL President Muto's 2012 New Year Message

"Do Not Quarrel with Providence, or Blame Others"

A Happy New Year to everyone in the MOL Group.

Looking Back on 2011
2011 has been a year of momentous events. We have witnessed the Jasmine Revolution, the floods in Thailand, and the sovereign debt crisis in Europe; but for those of us in Japan, the Great East Japan Earthquake of March 11 was the most shocking and painful event. We mourn those who were lost in this terrible disaster, and our thoughts remain with those who have suffered and lost so much. Immediately after the earthquake, we set up a task force and support headquarters, headed by myself, and set about checking the safety of Group employees and vessels, while implementing a raft of support initiatives in the affected areas drawing on the combined efforts of the MOL Group worldwide. The word kizuna ("bond") became a rallying cry that has resounded in the hearts of many Japanese this past year, and I myself have felt firsthand the powerful underlying strength and unity in the employees of the MOL Group. I would like to express my respect and admiration to all of you once again for your actions.

While the disaster did affect our business, our performance was also influenced further by a very difficult business environment, including the strong yen, high fuel prices, downward pressure on the market due to oversupply of shipping capacity, and a decline in demand caused by the economic downturn. The first half of fiscal 2011 marked the biggest loss that MOL has ever reported. Our forecast for the second half was that we would recover the losses of the first half as business conditions improved in the dry bulker market and automobile exports recovered. Nevertheless, the management environment surrounding MOL remains unpredictable and clouded by imminent oversupply of vessels as more new ships reach completion, and slumping business sentiment. These factors are expected to impact containership operations, especially, where conditions are extremely harsh with the impending completion of a large number of ultra large containerships, and the prolonged slump in the economies of Europe and the U.S.A.

Large-scale completion of new vessels is expected to continue this year, so we should prepare ourselves for a prolonged harsh business environment, and approach it with due care. After 2013, however, the number of new vessels completed is expected to level off, providing some light at the end of the tunnel. Over the medium to long term too, we predict that the excessive production capacity of shipyards in China, 2/3 of which is privately operated, will be brought into balance by the market mechanism, and we expect the oversupply of ships to be relieved.

Becoming the Company of Choice Among Customers
In our current situation, the first and most important thing we must do to ensure our survival as a company and to differentiate ourselves from our competitors is return to fundamental principles and continue being a company that is preferred and trusted by its customers. To this end, I think we need to further strengthen the following four key areas that form sources of trust.

The first key area is safe operation. There is no disputing that customers always evaluate a candidate company's operational safety level when selecting a shipping company. Under GEAR UP! MOL we are carrying out our Phase 4 initiatives to "become the world leader in safe operation." We have made steady progress in promoting visibility of safe operations and objectively assessing our performance in all aspects of our safe operation systems. As a result the level of safety at MOL has definitely improved over the past four years. It is also our job to provide safe transportation services at a competitive price while effectively reducing our impact on the environment.

The second key area is our financial position. Even though we are operating in adverse conditions, our financial position is the most sound among all the world's shipping companies, as our credit rating shows. Meanwhile, as the weak market conditions and the financial uncertainty in Europe have combined to bring even some relatively major shipping companies to a point of financial crisis, customers are searching for stable business partners and MOL's relative competitiveness is increasing. Under the current conditions, with customer's selection of shipping companies set to become even more stringent, MOL appears to be in an advantageous position. However, it is vital that we strive to improve our balance sheet and cash flow in the short term through persistent efforts to trim costs and other measures. Such efforts are indispensable for us to maintain and grow this strength as we go forward.

The third key area is the quality of transport services that we provide. Our car carriers constantly review and renew their protocols for damage prevention to ensure that cargo is delivered without so much as a tiny scratch. In our Liner Division, too, we regularly disclose our on-time arrival performance to our customers. As we move forward, we need to provide higher quality services for carefully and securely transporting customer cargo, and ensure that customers really feel the difference.

The fourth and final key area is our sales power. While we must tackle the above factors at a high level, it is our individual business capabilities that will dictate whether we will be designated as the service provider to meet the needs of our globally expanding customers. Business transactions are always decided by the relationships of trust between people in the end. I urge each of you to build strong relationships with our customers so that our strengths in safe operation, financial position, and high quality services will have a chance to shine through in our business results.

"Do Not Quarrel with Providence, or Blame Others"
In the immortal words of Confucius "One must not quarrel with providence or blame others, but improve through learning." Applying this wisdom to our situation today, I believe Confucius would tell us not to despise the markets, or blame others for our difficulties, but to pour our effort into doing what we can on our own to improve.

Hardship offers excellent opportunities for encouraging our own growth. In hard times such as these, we have much to do. As the proverb goes: "You must sow before you can reap." Now is the time for us to sow seed if we are to reap a harvest in the future and make a leap to the next stage in our development. It is during hard times such as these that we should be making diligent efforts and seeking ways to improve. Then, we will be able to reap rich future benefits and expand our business. Nothing will come of blaming people or circumstances. In that sense, although we are in an extremely difficult business environment, since last year we have indeed been sowing a variety of seeds.

In our effort to capture global marine transport needs, last year we started our VLGC business for LPG at Singapore-based Phoenix Tankers Pte. Ltd., which is in the central location for this business, and established MOL Bulk Shipping (Thailand) Co., Ltd. to strengthen the car carrier business in Asia as the automobile industry has concentrated operations in Thailand. In another move, MOLCIS, our group company for iron ore transportation services in Singapore, has increased its business scale. These changes will bring our business close to our customers, making it easier to respond to their needs, as we continue to globalize through our overseas group companies.

Business alliances with partners are another kind of important seed that we sowed last year. We established Euro Marine Logistics N.V. together with Hoegh Autoliners A/S to transport automobiles within the European zone, assembled the largest pool of VLCCs in the world with A.P. Møller - Mærsk A/S and two other companies, and in containership operations we entered into a comprehensive alliance in European trade with the Grand Alliance. Meanwhile, in our LNG business, we launched a new cooperative agreement in China, setting up a joint venture with China Shipping (Group) Company to enter the market for LNG transport to China. We also started domestic LNG transportation in Indonesia by teaming up with a local partner. Going forward I believe it will be important for us to seek any opportunities for partnership with all kinds of partners, and work with them to improve the efficiency of operations through benefits of scale.

In our slow steaming initiative, last year most of our vessels made more diligent efforts to apply slow steaming. This practice not only reduces fuel consumption, but is also expected to help mitigate the impact of oversupply in vessels. Moreover, it is in line with the worldwide trend towards reducing the impact of industry on the environment. As such, slow steaming should become the global standard for the shipping industry in the future.

In the overall Japanese marine transport industry, the system of taxation by tonnage has been expanded and strengthened as part of efforts to strengthen economic security in Japan. Chairman Ashida, president of the Japanese Shipowners' Association, and others concerned called for work done by the Japanese marine transport industry following the earthquake in March to be properly recognized, along with the important role of Japanese marine transport companies in securing economic stability for the country. As a result, conditions for Japanese shipping companies to compete with overseas shipping companies are to be greatly improved. This development is of immense value to MOL, and to the industry as a whole. I would like to thank all those involved once again.

2012 is the year of the dragon under the Chinese calendar. Traditionally, dragons are associated with an increase in good fortune. On this theme, I'd like to make this year one for "turning the tables." This will also be the final year of GEAR UP! MOL, and therefore a year for formulating the next midterm management plan to take effect from fiscal 2013. I plan to take time at Compass meetings and other places to discuss our future challenges and opportunities thoroughly and deeply, to plant real seeds, and together draft an action plan to prepare for the future. Although we are in a harsh environmental change, let us show the wisdom, courage, and capacity for action that will enable us to produce changes that will create tomorrow.

In closing, I would like to wish all MOL employees and their families throughout the world health and good fortune for the new year. Let us promise to keep every MOL Group vessel safe in 2012 through our own efforts.

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