Kawasaki Kisen Kaisha, Ltd. Business Information, Profile, and History

Company Perspectives:

Amid intensifying international competition, truly customer-oriented service is growing in importance. To fulfill its mission as an international integrated distribution enterprise, "K" Line is greatly expanding its domestic and overseas networks, thus further increasing the overall strength of the "K" Line group.

History of Kawasaki Kisen Kaisha, Ltd.

Kawasaki Kisen Kaisha, Ltd. ("K" Line) is one of the largest shipping companies in Japan, operating a fleet of approximately 320 vessels totaling 16.3 million deadweight tons. The company transports coal, grain, iron ore, lumber, automobiles, crude oil, and liquefied natural gas (LNG) across the globe. Along with marine transportation, "K" Line is involved in insurance, warehousing, and land and air transport services.

Beginnings: 1919 to the Early 1930s

"K" Line was established on April 10, 1919, in Kobe, a major shipping center in Japan. After World War I, the world maritime industries were hit by a severe depression, which was felt strongly by the Japanese shipping and shipbuilding industries. This situation was in contrast to their enormous expansion during World War I, when they had taken advantage of their favorable geographical position far away from the main battlefield in Europe, although Japan was a member of the Allied Forces.

Kawasaki Zosenjo (Kawasaki Shipbuilding Co., established in 1886), the second largest and oldest shipbuilder in Japan after Mitsubishi Zosen, was left after World War I with a large fleet of unsold ships. This fleet continued to increase for some time after the war because Kawasaki Zosenjo was forced to go on building ships due to the continued supply of steel plates from America under the Ship-Steel Exchange Agreement (Sen-Tetsu Kokan Keiyaku). The agreement had been concluded in 1918 between the U.S. government and individual Japanese shipbuilders, as well as several shipowners.

In order to deal with these unwanted stock boats, Kawasaki Zosenjo invested 11 ships of a total 100 thousand deadweight tons in setting up Kawasaki Kisen ("K" Line) in Kobe in 1919. The remainder of the unsold stock boats--16 ships totaling 139 thousand deadweight tons--was kept under the management of the Sempaku-bu, created in 1918 as a ship operation division within Kawasaki Zosenjo. The actual operation of these ships was, however, entrusted to "K" Line on a commission basis. Thus "K" Line entered the shipping business with a total of 27 ships of 239 thousand deadweight tons. The ships were initially chartered out to NYK (Nippon Yusen Kaisha), the biggest liner company in Japan, Suzuki Shoten, and other shipping companies. Among these, the most closely connected customer was Suzuki Shoten, a trading corporation that had achieved rapid growth during the war and was almost as large as Mitsui Bussan, the largest trading corporation at the time. In the latter half of 1920, however, "K" Line started to carry cargoes on its own account, due to the depressed chartering market.

In the meantime, an independent shipping company named Kokusai Kisen was established in Kobe in 1919, with an investment-in-kind of ships amounting to some 500 thousand deadweight tons, mainly from the shipbuilders and their subsidiary shipping companies. Although the process of establishment was complicated, the aim was to form, with some financial assistance from the government, a shipping company to operate unsold stock boats on a larger scale. Here again the majority of the investment, ships of 275 thousand deadweight tons, came from the Kawasaki group--Kawasaki Zosenjo and "K" Line. This meant that Kokusai Kisen became part of the Kawasaki group, although Suzuki Shoten and others also contributed some tonnage. Kokusai Kisen's ships sailed under A1 flags, which indicated that they were superior vessels qualified as A1 class by Lloyd's Register, and were deployed mainly on cross trades in order to reduce competition among Japanese shipping firms on the routes to and from Japan. Kokusai Kisen's business, however, was not particularly successful.

In August 1920, several months after the formation of Kokusai Kisen, Kojiro Matsukata was nominated as president of Kokusai Kisen and as a result assumed three presidential positions, including those of Kawasaki Zosenjo and "K" Line, which he already possessed. He planned to incorporate the tonnage owned by the three companies into a single operation to achieve efficiency, and in 1921 organized a joint service named K Line, with its head office in Kobe.

K Line must be distinguished from "K" Line. It took the initial letter K, common to the names of the three participants. Nominating Suzuki Shoten as its sole agent, K Line started tramp shipping--taking cargo as the opportunity arose--largely on the cross trades in the Atlantic region. It entered the liner trade as the tramp market became depressed and gradually expanded the business to include Japan Australia Line (JAL), a joint liner service with Yamashita Kisen between Japan and Australia. In 1923, a pooling agreement on revenue, cargo, and chartering was concluded among the participants to rationalize operations to meet the depressed market. Thus K Line came to operate 103 ships of 7.91 million deadweight tons in 1926, its peak year. With the establishment of K Line, "K" Line transferred most of the trade in the distant sea region to K Line and mainly concentrated on trade in the near sea region.

The Great Kanto Earthquake of 1923 resulted in an enormous demand for tonnage to carry relief and reconstruction goods. Taking advantage of this opportunity, "K" Line entered into near-sea liner services and opened new services successively: Japan-Korea and Japan-Taiwan in 1924, Japan-Vladivostok in 1925, and Japan-Shanghai and Japan-Sakhalin in 1926. These services developed further after around 1931 when Japan invaded China.

In 1927, the Japanese economy was hit by the so-called Kinyu Kyoko--financial crisis--and entered a severe depression, which was to be aggravated by the impending worldwide Depression that started in 1929. Under the direct impact of the crisis, Suzuki Shoten went bankrupt in 1927 and was no longer able to act as sole agent for K Line. Kawasaki Zosenjo was also a victim of the crisis and went into liquidation in the same year. As a result, Kojiro Matsukata was forced to resign as president and thus relinquished his position as president of "K" Line. Kokusai Kisen could not remain untouched by the crisis and soon experienced difficulties of its own.

These events had completely changed the situation for "K" Line. With the liquidation of Kawasaki Zosenjo and the resignation of President Matsukata, Kokusai Kisen broke away from the Kawasaki group and entered the control of the banks which had lent it money. The movement led to the withdrawal of Kokusai Kisen from K Line. This meant that K Line virtually disappeared, and "K" Line had to carry on its shipping business in distant seas independently, operating in 1928 a fleet of 41 ships totaling 265 thousand tons, probably including the tonnage of Kawasaki Zosenjo, which "K" Line had undertaken to operate. At this time, "K" Line was a fully owned subsidiary of Kawasaki Zosenjo and does not seem to have achieved complete independence until 1934, when "K" Line bought 11 ships from Kawasaki Zosenjo.

"K" Line's Independence Begins in 1934

During the period from "K" Line's fresh start to the end of World War II, world shipping as well as Japanese shipping experienced frequent changes: a severe depression until around 1935, then a brief period of prosperity due to heightened international political tension which led to increased shipping of war supplies, and finally chaos with the outbreak of World War II. "K" Line was, as a matter of course, exposed to these changes.

For some time after its fresh start, "K" Line concentrated, in the liner sector, on the Japan-North American Pacific Coast route in addition to the JAL, giving up the other businesses shared with Kokusai Kisen due to the shortage of tonnage. The main cargo on this trade was silk. In 1932, the company opened the Japan-New York service, following the change in silk transport from the Pacific Coast route to the direct service to New York.

From the middle of the 1930s, new services were opened, assisted by favorable trade conditions and various government schemes to promote new shipbuilding, such as the Yushusempaku Kenzo Josei Shisetsu (the Superior Ship Building Promotion Scheme) in 1937, and the Interest Subsidy to Shipbuilding Finance in 1940. This marked the "K" Line's entry to genuine liner trade on the distant sea routes. Prior to this change, "K" Line provided a semi-liner service (han-teiki), whereby it carried tramp cargoes at least on return voyages. Thus "K" Line opened the Japan-African East Coast service in 1934, reopened the Japan-Bombay service in 1935--it had been closed owing to the overall shortage of ships in 1928--the Japan-Middle and South American West Coast service in 1936, and the Round the World westbound service in 1937. "K" Line also strengthened services on the existing routes such as the New York route, the North American Pacific Coast route, and the JAL. However, it was forced to terminate these new and strengthened services with the approaching Pacific War in 1941.

"K" Line was active in the liner business, but its main business line had originally been tramp shipping, following the K Line tradition, and continued to be so until 1941. Moreover, even when liner services began, the ships took tramp cargoes as return cargoes. Tramp activities were carried out with changes to routes and cargoes according to circumstances. This procedure differed from the K Line period when the main field was in cross trades. In 1935, Malaysian iron ore was added to the main cargoes. Most important for "K" Line in the nonliner sector was the entry into tanker trade in 1933, with two chartered British tankers. This was a very early attempt among the common carriers in Japan to venture into tanker trade and was motivated by the increased oil consumption and the change in fuel transportation policy of the Japanese Navy in 1929, which up to that time had used its own tankers but thereafter relied on commercial tankers. "K" Line acquired a newly built tanker in 1935. Thereafter, "K" Line's tanker fleet grew to include 14 tankers in operation, totaling 193 thousand deadweight tons in 1937, the peak year in terms of fleet size.

To achieve the increase in the tonnage required due to expansion, "K" Line started to charter foreign ships in addition to domestic ships. Chartered tonnage continued to increase year after year up to 1938, when it amounted to 444 thousand deadweight tons and accounted for 65 percent of the total operating tonnage. In that year, chartered foreign tonnage accounted for 60 percent of total chartered tonnage.

Emphasis on tramp shipping, gradual expansion in liner trade, which accelerated after 1932, and reliance on chartered tonnage, which led to comparatively good business performance even in the depressed market, were the characteristics common to the so-called Shagaisen to which "K" Line belonged. The Shagaisen, which were originally tramp ship operators, together with the Shasen, the two large long-established liner companies, formed the Japanese shipping industry between the wars.

Surviving the War

In December 1941, the Pacific War began. As early as May 1942, all merchant ships above 100 gross tonnage and seamen were requisitioned by the state and were put under the unified control of a body called the Sempaku Uneikai. The war ended in August 1945, with heavy damage to the merchant fleet. "K" Line also suffered severely. At the start of the war, it owned 36 ships with a total of 260 thousand deadweight tons, but only 12 ships totaling 31 thousand deadweight tons survived, notwithstanding additions during the war. Indeed, "K" Line's war loss amounted to 60 ships of 271 thousand deadweight tons, for which no compensation was made under the policy of the Allied Powers.

Commercial ocean-going shipping was not permitted by the Allied Powers until 1950, and free activity was permitted only after 1952, when the treaty signed at the San Francisco Peace Conference came into effect. From then onward, the Japanese shipping industry grew rapidly along with the Japanese economy as a whole, partly as a result of the 1947 state shipbuilding policy, the Keikaku Zosen (Programmed Shipbuilding Scheme). "K" Line resumed oceangoing shipping business based on expertise accumulated in the interwar period and began technological improvement of its ships. The first oceangoing ship was contracted in 1950 to transport rice from Thailand. In the following year, the first liner service was launched on the Japan-Bangkok route. "K" Line continued to open new liner services, following its pre-war policy of placing more emphasis upon liner trade. By 1957, all of "K" Line's major liner services had been opened. By this time, "K" Line succeeded in setting up a liner service network that extended over North and South America, Africa, Australia, and Asia, leaving the Japan-Europe and the Japan-India, Pakistan routes, among major ones, untouched. The Japan-India, Pakistan route was to be opened in 1964 when "K" Line merged the liner department of Iino Kaiun together with its sailing rights on this service. In the period between 1957 and 1964, existing services were developed while several new but minor services were added.

In the non-liner sector development also took place, extending the service area and carrying a greater variety of cargoes. Most important among these was the re-entry into the tanker trade in 1953 with a chartered foreign tanker, followed in 1957 by a tanker built for "K" Line. Another important development was the introduction of ore carrier trade in 1960. The tanker and ore-carrier trades were to expand year after year as the size of the respective ships increased.

In the period between 1957 and 1964, the Japanese shipping industry underwent remarkable expansion in terms of fleet size, but its performance deteriorated steadily. This decline, while partly attributable to the worldwide shipping depression, was largely due to the negative effect of the Programmed Shipbuilding Scheme, which caused excessive competition among Japanese firms, particularly in the liner sector. Finally, in 1964, a major reorganization took place--involving about 90 percent of Japan's deep sea fleet and with strong guidance from the government--in order to reduce excessive competition within the industry. This resulted in the formation of six groups. "K" Line formed one of these groups as a core company with 15 subsidiaries. This necessitated "K" Line's merger with the liner department of Iino Line.

Branching Out into Specialized Ships: 1960s-70s

A few years after the reorganization, "K" Line, along with the Japanese deep sea shipping industry as a whole, made a rapid recovery from the depression and thereafter enjoyed nearly ten years of prosperity for the first time in its history. During this period, "K" Line expanded its tonnage from 735 thousand gross tonnage in September 1964 to 2.5 million gross tonnage in March 1973, while greatly diversifying its business into the operation of specialized ships to meet the enormous increase in Japan's foreign trade. As a result, "K" Line's fleet composition by ship type underwent a fundamental change between 1964 and 1973, with cargo ships declining from 44.4 percent to 16 percent of the fleet, specialized ships increasing from 12.7 percent to 34.6 percent, and tankers from 42.5 percent to 49.6 percent.

The specialized ships introduced in this period included coal carriers, reefers, timber carriers, and LPG tankers. Most important among them was the introduction of a car-bulker in 1968 to carry Toyota cars to the United States. In 1970, a PCC (Pure Car Carrier--a ship which carried only cars) was built, the first ship of this type in Japan. Since then, particularly after the oil crisis in 1973, the car carrier trade experienced remarkable growth, and "K" Line ranked among the four biggest car carriers in the world.

In the liner sector, "K" Line ventured into container services, starting with the Japan-North American California route in 1967 and forming a consortium on a space charter basis with three other Japanese firms. Thereafter, "K" Line extended its container services and by 1979 had established a container network which included the main routes. In 1975 "K" Line opened a container service on the Far East-Europe route by organizing a container consortium, the ACE group, with several Scandinavian shipowners. Prior to this, "K" Line had been admitted to the Far Eastern Conference in 1968 through its participation in Kawasaki Maersk Line (KML), a joint service with the Danish shipowners Maersk Line. In 1973, when "K" Line was contemplating opening a container service on this route, the company succeeded in gaining membership independently and therefore dissolved KML. On the Japan-Australia route, "K" Line organized a container consortium, the Eastern Seaboard Service (ESS), with the Australian National Line (ANL) and started a container service in 1969 with roll-on/roll-off (RORO) container ships. As a result the Japan Australian Line (JAL), a long-established joint service with Yamashita Kisen, was dissolved. Another development in the liner sector was carriage of industrial equipment using ships with derricks of increasing capacity. The trade increased sharply after the oil crisis but declined in importance toward the mid-1980s.

Overcoming Hardships: 1980s and Beyond

The Oil Crisis of 1973 brought dramatic changes. The world shipping industry entered a depression which affected Japanese shipping particularly severely due to the sharp rise in the value of the yen. The depression, with only a brief intermission, lasted until 1988. Under these circumstances, "K" Line switched from an expansion policy to reduction in tonnage. Its main goal was to sell a large tonnage of its redundant large-size tankers and the smaller ships that had become uneconomical due to the high yen value and high labor costs. At the same time, "K" Line tried to rationalize its operations. This included an increasing use of flag of convenience (FOC) ships, often in the form of Shikumisen or "tie-in" ships, and reduction in the manning of Japanese flag ships.

"K" Line also tried to enter or develop a number of businesses that looked promising. In 1981, "K" Line launched its LNG tanker operation, building a new ship jointly with several other Japanese firms. The business has continued to grow. Car carrier business was another of the few sectors that flourished after the oil crisis.

In the liner sector, while extending or consolidating its network with container or conventional ships, "K" Line was attaching more importance to the Far East-North America route on which the company was a pioneer among Japanese firms. To develop the intermodal service on this route and to gain advantage over competitors, in 1986 "K" Line began operation of its Double Stack Train (DST), originated by "K" Line for its own use, in the United States. This was followed by a door-to-door delivery service for small cargoes on this route in 1988. In 1990, "K" Line ventured into the cruise business via a subsidiary, Seven Seas Cruise Line.

The 1990s proved to be just as turbulent as the previous decade. While the company focused on broadening its global reach, changing economies and fluctuations in the value of Japanese currency forced it adopt a reorganization plan, and in 1993 the "K" Line re-engineering program was launched. Designed to position the company as a leading global concern, the new strategy focused on cutting costs, moving employment outside of Japan, and trimming expenses in order to bolster profits. The company also eyed partnerships as crucial to expansion. In 1993, "K" Line teamed up with Mitsui O.S.K. Lines, Nippon Yusen, Showa Line, and Iino Kaiun to transport Qatar Liquefied Gas Co.'s LNG from Qatar to Japan. That year, the Corona Ace, "K" Line's first coal carrier serving the electric power industry, made its debut. In 1994, the firm joined forces with Yang Ming Marine Transport Corp. and Hyundai to provide service between North America and Europe. In October of that year, K-S Shipping Ltd. was created as a joint venture with Sinotrans Liaoning. Two years later, the Trans-Atlantic Container Service was established.

"K" Line began to prepare for its entrance into the new century just as Asia began to experience a financial crisis. The company, however, was determined to restore profits--especially in its container business where its market share had tumbled--and increase shareholder value. Phase two of its re-engineering program was introduced in 1996 and was followed by a five-year management plan adopted in 1998. Entitled New "K" Line Spirit for 21 (New K-21), the plan detailed the company's business approach for the new century. New K-21 emphasized several points, including a stable payment of dividends, a focus on the logistics market with shipping as a core business, pursing the growth of profits through expansion, bolstering customer service, and safety in navigation.

During 1999, the firm began new containership services from Asia to the East Coast, Asia to the Mediterranean, and from the Mediterranean to the East Coast. Upon entering the 21st century, the company began to realign several of its subsidiaries and created "K" Line Logistics Holdings Inc. as part of its New K-21 strategy. The firm pursued partnerships in 2001 and 2002, established a shipping business in Singapore, and continued to strengthen its logistics holdings. Despite "K" Line's efforts, profits languished as freight container shipments--responsible for nearly half of overall sales--fell due to sluggish worldwide economies and increased competition.

In 2002, the company adopted a new three-year management plan, KV-Plan, which management set in place to renew its efforts at restoring and maintaining profitability. While the company had endured hardships over the past few decades, "K" Line's tenacity left it well equipped to fend off and overcome future problems. As Japan's third-largest marine transportation concern, "K" Line appeared to be well positioned to battle any rough waters that lie ahead.

Principal Subsidiaries: Badak LNG Transport Inc.; Kawasaki Kinkai Kisen Kaisha Ltd.; Taiyo Nippon Kisen Co. Ltd.; "K" Line Ship Management Co. Ltd.; Rokko Warehouse & Transport Co. Ltd.; "K" Line Accounting and Finance Co. Ltd.; Intermodal Engineering Co. Ltd.; "K" Line Japan Ltd.; Tokyo Maritime Agency Ltd.; Shimizu Kawasaki Transportation Co. Ltd.; Daito Corporation; Hokkai Unyu Co. Ltd.; Naigai Unyu Co. Ltd.; Nitto Tugboat Co. Ltd.; Rinko Corp.; "K" Logistics Corporation; "K" Line Air Service Ltd.; "K" Line Travel Ltd.; Japan Express Transportation Co. Ltd.; Shinto Rikuun Kaisha Ltd.; Maizuru Kousoku Yusou Co. Ltd.; "K" Line Systems Ltd.

Principal Competitors: Evergreen Marine Corporation Ltd.; Mitsui O.S.K. Lines Ltd.; Nippon Yusen KK.

Chronology

• Key Dates:
• 1919: "K" Line and Kokusai Kisen are established.
• 1921: The tonnage owned by Kokusai Kisen, Kawasaki Zosenjo, and "K" Line are organized into a joint service named K Line.
• 1928: The K Line collapses due to an economic depression; the "K" Line is left to carry on its distant seas shipping independently.
• 1934: "K" Line achieves complete independence after purchasing 11 ships from Kawasaki Zosenjo.
• 1945: The company's war losses amount to 60 ships of 271 thousand deadweight tons.
• 1952: Free activity in ocean-going shipping resumes.
• 1964: The Japanese government launches a major reorganization of the shipping industry.
• 1970: The Pure Car Carrier (PCC) is built for the first time in Japan.
• 1990: The firm enters the cruise market through subsidiary Seven Seas Cruise Line.
• 1998: The New K-21 strategy is adopted to prepare for business in the new century.