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For most of the 20th century Nippon Yusen Kabushiki Kaisha (NYK) was the largest shipping company in Japan. Today, based on a composite index of tonnage owned and operated as well as income from shipping business, it is the world's leading shipping enterprise. NYK provides a full range of shipping services, including regular liners, trampers, tankers, and specialized vessels such as automobile carriers. Historically, its most distinctive characteristic, still strong, has been its leading role in freight conferences or shipping cartels.
The history of NYK's business operations can be divided into four periods. The first marks the company's establishment in 1885 and consolidation over the next decade. In the second, from the mid-1890s to around 1908, the company carried out an initial and rapid expansion of overseas lines. In the third, after the Russo-Japanese War of 1904 to 1905, NYK began to concentrate more exclusively on regular lines within conferences. This was a conservative strategy that lasted until the late 1950s, when the company started a comprehensive series of services, a move which led to the fourth period, one of diversification, that has continued to the present day.
NYK was formed in 1885 through a merger between the shipping assets of Mitsubishi and the Kyodo Unyu Kaisha (KUK) or Union Transport Company. The Mitsubishi firm had been subsidized by the new Meiji government since 1875, while KUK was an amalgam of trading firms, local shipping enterprises, and government investment that had been motivated by Mitsubishi's increasing neglect of shipping in favor of outside investments, mostly in mining. NYK was initially a joint-stock company, with more than three-quarters of the steamships in Japan. It spent its first decade consolidating its finances and fleet under government subsidization and regulation. At first most of its routes were domestic. These became less profitable by the early 1890s because of competition from railways and another shipping firm with regional strength in western Japan, the Osaka Shosen Kaisha (OSK).
There were two main forces behind NYK's expansion in the 1890s. One was the support of the cotton-spinning industry, which enabled NYK to start a line to Bombay in 1893 to import raw cotton. This trade entailed a series of mutual guarantees among the cotton spinners, NYK, and trading firms such as Mitsui Bussan Kaisha, as well as credit to shippers from government-affiliated banks. The second impetus came from greatly increased subsidization made possible by the indemnity Japan received from China after the Sino-Japanese War. This encouraged NYK to establish lines to Australia and Europe, and to Seattle in the United States in 1896. The subsidies were particularly efficacious on the European line, where they gave the company bargaining power to overcome initial opposition from British firms to NYK's entrance into the Far Eastern Freight Conference, which operated between Europe and East Asia. Generally, lines to India could operate with little or no subsidization, whereas the Seattle line was more dependent. In contrast to the plentiful cargo of the outward-bound silk trade, the inward-bound trans-Pacific route was much less profitable because many manufactured goods from the eastern and southern United States went to Japan via the Suez Canal before the Panama Canal was opened. The European line generated about 40 % of the company's revenue, and was strong on its eastward run because Japan imported much of its machinery. On the westward run, however, Japanese export freight was insufficient, and NYK came to depend on Chinese goods, which it loaded through feeder services in China, with transshipment at Shanghai.
This pattern of expansion changed after the Russo-Japanese War. Domestic business was hurt by recession and the emergence of many new shipowners that had sprung up with the government's wartime ship purchasing policy. Also, government colonial policy overseas, and hence closer supervision, made feeder lines more problematic, and stricter subsidy legislation encouraged withdrawal from many domestic services and concentration on regular transoceanic lines. This change in strategy occurred in the third period of NYK business. In the years prior to World War I, the company was reluctant to initiate new lines without subsidization unless it had a strong shippers' network. This it had on the Calcutta line, opened in 1911, but it lacked one on a proposed line through Panama, and the silk export trade remained on the northern route through Seattle. For this reason it held back until subsidies were received early in World War I.
Although NYK earned huge profits during World War I, with government controls over freight rates on subsidized lines, the company exploited the war less effectively than many independent Japanese operators, who carried on tramp services outside of government restrictions. The war and its aftermath opened up new lines for the company, to New York via Panama, to Liverpool, and to Hamburg. The central problem of the interwar years was how to operate this more geographically extensive network with steady growth in the face of increased competition from Japanese firms and the emergence of a much larger U.S. fleet.
The most famous strategic response of NYK during these years was its substantial investment in passenger services. In 1926 it purchased the Pacific operations of the Toyo Kisen Kaisha, which ran mostly to San Francisco, and proceeded to build a series of world-class passenger ships. Decades later, long after NYK had withdrawn from the passenger business, the company's popular identity was still associated with these vessels. Despite their popularity, the passenger business did represent a specialized version of the already cautious liner strategy and NYK fell behind OSK in introducing express ships on the New York line in the late 1920s. These ships were fast enough to effect a change in the silk trade, from the rail route via northern Pacific ports to the Panama route. NYK was slow to enter the tramp business also, remaining instead primarily within the conference systems. This presented two additional problems linked to the United States. One was U.S. antitrust law, which forbids exclusionary practices of cartels like the Far Eastern Freight Conference. The second was economic, and emerged through the restructuring of many shipping routes in response to changing demand from U.S. trade and industry. With its cautious strategy NYK had difficulty responding to these changes, and by the eve of World War II it was being seriously challenged by OSK for pre-eminence among Japanese shipping firms.
During World War II NYK lost virtually all of its large oceangoing vessels, and its fleet fell from a peak of 866,000 gross tons in 1941 to 155,000 at the end of the war. Under the restrictive economic policies of the early U.S. occupation of Japan, large shipping firms like NYK had three strikes against them: severe limits on the size of ships--6,000 tons, threats of dissolution under corporate deconcentration programs, and prohibitions against private trade. Nevertheless, in the most general sense, the war and occupation had a leveling effect on all shipping firms, and in the long run allowed NYK to recapture the strategic initiative that had been passing to OSK and others, like Mitsui Bussan's shipping division, before the war.
In the late occupation, the United States began some subsidization through its aid programs, the Korean War effected shipping recovery, and occupation authorities helped Japanese firms re-enter overseas lines and conferences. The event that triggered a transformation in NYK strategy, leading to the fourth period, was known as the "Mitsui Fight." This was a three-year unsuccessful attempt in the mid-1950s by NYK and OSK, in cooperation with European firms, to keep Mitsui Senpaku KK--Mitsui Bussan's former division--out of the Far Eastern Freight Conference. All firms suffered in this struggle, but Mitsui survived because of its strength in the tanker business which had supported it during the competition. This realization led NYK to undertake its strategy of diversification, a move accompanied by a restructuring of its business division into three major services--liners, trampers, and tankers.
It was some time, however, before NYK enjoyed the fruits of this strategic change. The 1950s were a difficult time for all Japanese shipping companies, and NYK operated without profit from 1956 to 1965. Two forms of financial consolidation emerged in the 1960s. First, the government encouraged consolidation in the industry, linking a policy of merger with a commitment to increased subsidization. Under this process, six groups emerged to constitute the core of the industry. NYK merged with Mitsubishi Kaiun KK, a former division within Mitsubishi Corporation, while rivals OSK and Mitsui Senpaku joined to form Mitsui O.S.K. Lines, Ltd. The second form of consolidation was technological. The government aided the shift to containerization by aiding firms that formed cooperative container groupings known as the space charter system. This was particularly effective on the Pacific. Earlier, NYK had worked with the Matson Navigation Company of San Francisco to introduce containers, and on the European line, along with Mitsui O.S.K., it established a container consortium with British and German firms called the Trio Group.
NYK also pursued its diversification by building tankers for both oil and ores and developing a fleet of car carriers. These promising beginnings, however, were partially offset by a series of shocks in the early 1970s. These included a revaluation of the Japanese yen and a major strike, both of which increased the cost of Japanese shipping. In addition, the oil crisis entailed both a short-term boom and long-term risk; freight conferences were threatened by flag-preference policies of developing countries--the latter shipped goods on the ships of their own countries wherever possible--supported by the United Nations Conference on Trade and Development (UNCTAD); and rate-cutting wars on the Pacific undermined profitability there. During this era of crisis for the shipping industry, NYK displayed remarkable strategic adaptability. Its most decisive move was a partial withdrawal in 1975 from the tanker business, to the point of canceling contracts on some ships already under construction, even though this business was still very profitable. The wisdom of this decision was borne out in the 1980s when several Japanese firms that had continued to pursue the oil tanker boom went bankrupt. Meanwhile, NYK continued to diversify, ordering liquefied natural gas (LNG) tankers and a larger fleet of car carriers to service the growing exports of automobiles to North America. With its still profitable base in conferences systems, these moves gave NYK a balanced business profile that enabled it to remain the largest and generally most profitable Japanese shipping firm into the early 1990s.
During its first half-century, NYK's largest stockholders were the Mitsubishi zaibatsu--family-owned enterprise group--and the Imperial Household Ministry, whose shares had been transferred from the Finance Ministry in the late 1880s. Most of the leading managers in the early NYK came from Mitsubishi. During its era of expansion, however, because most of its shippers were outside the Mitsubishi zaibatsu, NYK was able to conduct a relatively autonomous management. As a ship purchaser, it also played an important role in the development of Mitsubishi Heavy Industries, Ltd. During the occupation, all zaibatsu-related shareholding was broken up and NYK stock became widely dispersed for the next decade. Following the reorganization of the industry in 1964, Mitsubishi firms quickly began to purchase NYK shares so that by the 1970s they controlled about 30%. Likewise, NYK holds substantial shares in numerous Mitsubishi companies and is a full member of the present Mitsubishi Group.
Through its earlier era of expansion NYK had been led by its president, Rempei Kondo. During World War I, however, he began to lose control of the firm as internal disputes arose over capital stock increases and dividend policy, and several executives resigned. After his death in 1921 the company suffered labor problems involving a split between shore and sea employees, and many more executives left. Consequently, over the next decade NYK presidents came from outside the company to restore order. The most important of these was Kenkichi Kagami, the chairman of The Tokio Marine and Fire Insurance Company, another member of the Mitsubishi zaibatsu. Serving from 1929 to 1935, Kagami was known as an economizer and was reluctant to invest in the new express ships for the New York line. Managerially, his key contribution was to promote NYK career managers from within. Since then, all NYK presidents have risen from within the company.
In the postwar period, perhaps the most effective of these presidents was Shojiro Kikuchi--president from 1971 to 1978 and chairman from 1978 to 1984. As a junior executive in the 1950s he played a key role in company strategy, particularly in the era of changes that followed the Mitsui Fight and in the container arrangement with the Matson Line. Something of an intellectual, Kikuchi worked closely with the company's Research Chamber in anticipating long-term changes in the country's industrial structure. This vision gave him the courage in 1975 to override the almost unanimous opposition of his executives and cut back on tanker operations.
NYK has been able to finance some of its new investments from its own capital. This marks a shift from its heavy reliance on subsidies and loans in the 25 years after the occupation. In the early years of its expansion, up to about 1910, NYK's main source of financing was subsidies. Thereafter reserves grew rapidly and they became a key source of funds until the 1920s. After World War I, however, the company allowed money to flow out of the firm in excessive dividends. For the remainder of the interwar years it relied on bonds and loans.
Financially, the major shock to the Japanese shipping industry in the 1980s was the doubling of the value of the yen against the U.S. dollar between 1985 and 1987. Since so much freight is denominated in dollars, this meant a substantial reduction in income. NYK responded to this crisis in three ways: retrenchment, diversification, and broadening of its base in shipping, in which it still holds a comparative advantage. Perhaps the key measure under the retrenchment strategy was to spin off internal functions such as accounting and information systems as new subsidiaries. Between 1987 and 1991 this helped to reduce the number of company employees by 30%. The wide range of the company's diversification is best typified by two firms that began operations in the 1980s. One, Nippon Cargo Airlines, is a joint venture of NYK, several shipping firms, and an airline, and was established to preserve market share in what is increasingly miniaturized cargo. The other, Crystal Cruises, Inc. a wholly owned subsidiary registered in Los Angeles, is NYK's entry into the luxury cruise market.
What profits NYK earned in the first few years after the 1985 to 1987 yen shock came from another form of diversification, financial subsidiaries and other financial investments, not from shipping operations themselves. In the late 1980s, however, increases in freight rates sparked a business recovery in the shipping industry, a trend that NYK itself was well prepared for with its expanded investments in transportation infrastructure. Since its 100th anniversary in 1985, the company has taken to calling itself a "mega-carrier," a term that symbolizes its global network of multi-modal transport and the broad logistical capability to integrate shippers and cargo movement. Much of this effort has concentrated on new computerized information systems. Business of this sort also is being spun off in the form of new subsidiaries.
One trend that has emerged in 1991, perhaps only in embryonic form, is that the presidents of some of these new subsidiaries, who are themselves former NYK career employees, have been appointed to the company's board of directors. This is a department from the pattern of most of the postwar period, when the board was composed almost exclusively of executives from within NYK itself. These strategies, therefore, may change the company's structure to reflect the broadening base of company operations. Most of these subsidiaries, however, still support shipping itself. This suggests that, in contrast to the pattern of diversification followed by British shipping firms, where shipping operations have shrunk to a small portion of their overall business, NYK is not moving far from its core business of shipping.
Principal Subsidiaries: Shinwa Kaiun (27%); Tokyo Senpaku (37%); Taiheiyo Kaiun (25%); Kyoei Tanker (30%); Yusen Real Estate Corporation; Hikawa Shoji Kaisha (67%); Yusen Air & Sea Service (77%); Yusen Accounting & Finance; NYK Systems Research Institute; NYK International Luxemburg S.A. (Luxembourg); Nippon Cargo Airlines (11%); Crystal Cruises, Inc. (U.S.A.).
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