Shipping lucrative despite drop in exports. (Asia Report).

More than three decades have passed since Kawasaki Kisen Kaisha launched the world's first dedicated ship to transport cars.

Kawasaki, also known as "K" Line, operates a fleet of nearly 65 car ships, third largest in the world behind Nippon Yusen Kaisha (NYK Line) and Mitsui O.S.K.

For "K" Line. as well as rivals NYK and Mitsui O.S.K. the business has been lucrative, despite a 17-year. 40 percent decline in vehicle exports from Japan. Analysts estimate that half of their operating income is now generated from the car trade. But with forecasts predicting a further decline in exports, the issue facing management is how to stay profitable.

"K" Line executive Hiroyuki Maekawa believes That vehicle exports could sink to as low as 3.5 million units before leveling. This would represent another 15 percent decline from last year and a nearly 50 percent drop since auto exports peaked at 6.7 million units in 1985.

To deal with declining demand, "K" Line has shifted gradually away from pure car carriers (PCCs) to pure car/truck carriers (PCTCs), enabling it to carry a mix of sedans. minivans and SUVs. This has allowed "K Line to raise utilization, which despite a shrinking export pie still stands at more than 95 percent.

The newest generation of PCTCs, of which more than three dozen are in operation, including four by "K" Line. can haul more than 6,000 vehicles on their 12 decks, some of which now have 6 ft. 4 in. clearances.

To further raise utilization, "K" Line has broadened its shipper base and now calls at as many as eight major loading ports before embarking to the U.S., Europe or the Middle East. And on any particular shipment, one might find cars built by five, even six car companies.

Topping the list is Toyota Motor, which exported 1,7 million vehicles last year, followed by Nissan Motor (556,983 units), Mazda Motor (478,929). Honda Motor (415,561) and Mitsubishi Motors (369,954) in that order.

"It is the only way if we hope to fill the vessel," says Maekawa, who adds: "It also makes it more difficult to schedule destination port calls in a timely way." As a result, service across the Pacific, which once took as few as 11 days from the first port of call to the first discharge port now takes anywhere from 14 to 18 days.

Meanwhile, reflecting the buildup of offshore assembly by Japanese carmakers since the mid-1980s, "K" Line and other Japanese shipping companies are putting greater emphasis on the inter-Asia trades and cross-trades between North America and Europe, Southeast Asia and the Middle East and Europe and the Middle East.

Maekawa predicts there will be a huge increase in cross-trade operations from the middle of the decade, reflecting yet another big buildup in overseas production by Toyota, Honda and other Japanese automakers.

"One model will be produced in Australia and another in South America, and from those locations They will be exported," he says, adding: "In the early stages of their globalization activities. Japanese carmakers placed their assembly plants close to the market they intended to sell their cars. They have now begun to shift production to the lowest-cost areas."

Against this backdrop. "K" Line in July last year established a new subsidiary in Singapore. "K" Line Pte. Ltd., to strengthen its principal shipping functions between Thailand and Australia and the Malaysian coast and other inter-Asia car markets.

Maekawa estimates that 14 percent of global auto production is now transported overseas by ship: around 8 million units in 2001. excluding the inter-Asia trades and coastal routes such as between Argentina and Brazil. Shipments originating in Japan represent nearly half of the global total.

As for the future, Maekawa foresees no major technological breakthrough. "Change will be incremental." he says. "focusing on flexible underdeck space, faster port operations and so forth. But there are limits. There's no way to get around physically loading and unloading cars one at a time."

J-Report

This article was provided exclusively to Automotive Industries by J-Reports, a new information service offering in-depth coverage of automotive technology developments and trends in Japan and Asia from industry experts based in Tokyo. For additional information about this sad other studies and prices, contact jreports@attglobal.net.

2001 Loading Record:

NYK Line                       2.0 million *
"K" Line                       1.5 million *
Mitsui O.S.K.                  1.5 million *
Hyundai Merchant Marine Corp.  1.3 million
Wallenius Lines                1.0 million
Hoegh-Ugland Auto Carrier      0.3 million
Others                         0.3 million *
Total                          8.0 million

* Of the total, around 80 percent are vehicles exported from Japan.

Source: Japanese shipping companies