Mar 4, 2015

NYK changes coming to its Japan-Southeast Asia route

Nippon Yusen Kaisha (NYK) is set to reorganize its Japan-Southeast Asia trade route. The company announced its new service structure on March 3. It will cease its existing Japan-South China/Thailand/Vietnam Perseus (PER) service, and establish a new service called Phoenix 2 (PHX2) from the Kansai region, which will offer the industry's fastest service to Thailand at six days. It will also begin making port calls to Yokkaichi on its Japan-Indonesia/Straits LEO service, and continue calling at Subic port on its Japan-Taiwan/Philippines Meteor (MET) service. NYK has stated that the reorganization is an effort to reinforce its cargo booking levels in the intra-Asia region, and NYK Container Line has commented that it plans on capitalizing on demand by establishing the fastest service to Thailand from both the Kanto and Kansai areas in conjunction with its existing PHX service.

While NYK only began its PER service last spring as a jointly operated service with Maersk Group's MCC Transport, it will cease the service next month. To replace it, it will establish a new PHX2 service while also replacing its existing Japan-Thailand/Vietnam PHX service with a new PHX1 service by implementing adjustments to its ports-of-call. MCC Transport will reduce the size of ships it has deployed to the service, and plans on continuing to independently operating the service on the Japan-Thailand trade route. As such, while this will mean an increase in service frequency on the market overall, it is anticipated that there will be no change to total available freight space.

PHX2 will be an independently operated service by NYK, to which it will deploy three 2,700-TEU ships. Rotation will be: Tokyo (Wed), Yokohama (Wed-Thu), Shimizu (Thu), Nagoya (Fri), Kobe (Sat-Sun), Laem Chabang (Sat-Sun), Ho Chi Minh (Wed-Thu), Tokyo. The service will commence on March 28 with a departure from Laem Chabang. PHX1 will be independently operated by NYK with three 1,400-TEU ships. With the reorganization, port calls to Shimizu will be moved from PHX1 to PHX2, and the port call order for Kobe and Osaka will be switched.

PHX2 will be able to offer service from Kobe to Thailand in six days, making itself the industry's fastest service, and service to Ho Chi Minh in 10 days. NYK Container Line has also stated that the CY cutoff for Kobe will be Fridays with arrival at Laem Chabang on the weekend, which will allow cargo to be carried out on Mondays, making it a highly convenient service structure. In terms of imports, it will also be able to transport cargo from Ho Chi Minh to Tokyo in six days. Combined with PHX1, it will be able to offer the industry's fastest service in both directions, from the Kansai and Kanto regions to Thailand and from Ho Chi Minh to the Kanto and Kansai regions, and the company has stated that it is set to capitalize on demand from both Thailand and Vietnam, which are among the largest markets in Southeast Asia.

In LEO, it will newly call at Yokkaichi. For NYK, it will mark its first direct Yokkaichi-Indonesia/Singapore service since its Japan-Straits/Indonesia PGS1 service it operated in 2013, but then ceased in March 2014. It will switch to the new service setup on March 29 with a departure from Tokyo.

To MET, it will incorporate Subic port, to which it had been making trial calls since November 2014, as an official port-of-call in April, and it will also remove Ho Chi Minh from PHX2. It will switch to the new setup on April 3 with a departure from Osaka. The new structures for services that will undergo changes are as per the accompanying table.

[Commentary]
Competition has become increasingly fierce on the intra-Asia trade route in recent years due to factors such as the increase in the number of shipping companies that have forayed into the area and operators reinforcing their services in an effort to capitalize on brisk demand levels, which has lead to stagnation of freight rate levels. As a result, companies have placed high importance on keeping operating costs down while improving profitability.

When it reshuffled its intra-Asian services last spring, NYK switched its Thailand/Vietnam service into a joint one with MCC Transport as well as its Straits/Indonesia service into a joint operation with Kawasaki Kisen Kaisha (K Line) and Hapag-Lloyd. In addition to attempting to reduce the cost per slot by deploying Panamax ships, considered large ships for the intra-Asia region, NYK also aimed to create operations with a stable schedule that is less susceptible to adverse weather conditions.

One miscalculation was port congestion. With various companies having increased the sizes of their ships, ports in Asia have been unable to keep up with mounting cargo volume due to undeveloped infrastructure, leading to exacerbating congestion at many ports in 2014. As a consequence of using larger ships, a single delay made it difficult to procure a berth window due to pier length problems, spurring further delays and creating a negative spiral in many cases.

The company's PER service, which is slated for cancellation, was significantly affected by port congestion. The service called at Hong Kong, which is also seeing increased congestion, meaning its schedule faced chronic delays. To counteract the congestion, NYK deployed an additional ship last November, bringing the total number of service vessels to four. While this resulted in improved punctuality, it made for longer transit times (T/T) overall and reduced competitiveness of the service. Further, the deployment of an additional ship increased operating costs more than initially expected, putting strain on profits.

The goal of NYK's upcoming reorganization, first and foremost, is to once again offer more competitive and reliable service in an effort to boost cargo booking levels. PHX2 will be on a par with K Line's JABCO-1, which connects the Kansai region with Thailand, in terms of TT, that's, the industry's fastest. By eliminating elements that could possibly cause port congestion, it hopes to be able to offer the industry's fastest service, allowing it to respond to needs from NVOCCs and shippers that desire reliable schedules with short lead times. NYK Container Line is confident about the changes, stating that as long as it can offer an attractive service, it should see an increase in usage by customers even if operating costs run slightly higher. Regarding services to Manila and other ports where congestion could occur, the company will deploy more ships than would otherwise be necessary to act as a buffer, while also dispersing risk by utilizing Subic and other alternate ports.

Another feature in NYK's service realignment is that it will operate PHX1 and PHX2 independently. While costs will increase compared to when it deployed larger ships when the services were jointly operated, NYK Container Line has commented that benefits include the ability to offer flexibility with regard to operations.

Meanwhile, while PER was able to respond to needs from both South China and Thailand/Vietnam, its challenge going forward will be to address the South China region, which has been removed from its rotation. Thus far, the company has attempted to address the needs of both regions, but ended up in a drop in competitiveness for its Thailand/Vietnam service. With the coming revision, NYK is attempting to boost cargo booking levels for both Thailand and Vietnam. The company is still currently looking into the new Japan-South China and South China-Thailand/Vietnam service structures, it is expected that the company will also offer highly competitive service in South China.
(By Kosuke Nakamura)

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