Executive Officer Junichiro Ikeda, in charge of the Liner Division, talks about the current status and future outlook of MOL's containership business.

	Executive Officer Junichiro Ikeda

— Please recap what has happened since September of last year.

Ikeda: Though both U.S. and European economies seem to be running out of steam, cargo traffic is actually on an upward trend. Freight rates reached a peak for the last few years in summer 2008, although the Bunker Adjustment Factor (BAF) rose due to skyrocketing fuel costs.

But freight rates dropped some 10% instantly after the Lehman Shock. Thinking back, there were some signs of decline (U.S. GDP growth, jobless rate, etc.), but these did not cause shipping companies to hold off on investment in new vessels.

After the Lehman Shock, trade volume fell about 20% on the main routes. Trade from Japan dropped around 40% temporarily.

Yearly freight rate negotiations with our main customers usually take place from April to May. Our customers quickly went into inventory adjustment mode after the Lehman Shock in September 2008, and slackness in cargo trade was at its worst from January to March. This had a huge impact on the freight rate negotiations. Customers could not make export plans because they could not project demand in the European and U.S. markets.

Ocean shipping companies scrambled to secure cargo bookings as they prepared to launch many newbuilding vessels, so prices collapsed on all routes. I finally started to see the market calm down a year after the Lehman Shock.

— Tell us about our company's efforts in the future.

Ikeda: Looking at the demand and supply balance in the future, we face a very serious situation in which many newbuilding containerships will be launched at a time when there is little hope of an increase in cargo volume. We reduced our containership fleet by about 30 ships — returning 20 chartered ships and scrapping 10 vessels. This reduced cargo space by 20% on North America routes and by 30% on European routes.

We still faced a surplus of vessels, so we set back the delivery schedule of some newbuilding containerships. We also took various measures to reduce costs including downsizing of the organization.

In this business climate, we can't really consider many expansion plans. But we will work to expand in areas where we expect future growth. For example, Intra-Asia routes are still bustling even now.

This route suffered the least from the Lehman shock, and I think it will become even more important in the global trade structure. Our services to and from Japan are already highly competitive, so we will expand our networks with a special focus on China. I think the Asia-South America trade still has a lot of room to grow thanks to Brazil's economic development. India is another target area.

— Please talk about the reasons for the latest restructuring.

Ikeda: We have two objectives— (1) Shift our focus to markets outside Japan and (2) integrate trade management in Hong Kong. Until now, we operated with a three-pole structural system (Concord, Hong Kong, and Rotterdam) under the concept "Virtual Liner Company."

This system achieved positive results so far. However, through our experience in the recent financial crisis, we learned that speedier management decisions, a simpler chain of command, and further standardization of operations are indispensable. And considering the proportion of world trade accounted for by Asia, China in particular, we decided the best move would be to integrate trade management and locate its headquarters in Hong Kong. And considering the proportion of world trade accounted for by Asia, China in particular, we decided the best move would be to integrate trade management and locate its headquarters in Hong Kong.

— What is the purpose of relocating MOLAM headquarters?

Ikeda: It is integration of trade management and area management. We shifted some trade management functions for the North America route, which were handled in Concord, to Hong Kong. Our goal was to boost operational efficiency by integrating the remaining operations — mainly in area management such as inland rail transport and container inventory control — in Chicago.

— In closing, what message do you have for the Liner Division staff?

Ikeda: Even before the Lehman Shock, we were faced with lower cost competitiveness in our container segment. From a historical standpoint, the containership business has ups and downs and cannot really generate stable profits. But if we are among the leaders in competitiveness, we will be able to minimize losses even in a bad economy, and regain profitability before our competitors when the business climate improves.

I think our competitiveness has declined in the last few years compared to before. I thought it was difficult to regain competitiveness unless the business scale was large, but now bigger does not always mean better. I think we have a great opportunity to restore our competitiveness against other companies.

In the meantime, we can't expect a recovery of freight rates without addressing the gap between demand and supply. Let's take this opportunity to improve our cost competitiveness in various fields. We also need to increase profitability through measures such as expanding our network in areas where we anticipate future growth.

Please review your operational procedures - even routine ones that young staffers might think are perfect and have no room for improvement. I am sure we have many procedures that do not meet the needs of the times. Don't hesitate, and work hard to seek creative ways to improve daily operations.