Cargo Trade Will Sink Into A Double-dip Recession: MOL CEO Ikeda

Cargo Trade Will Sink Into A Double-dip Recession: MOL CEO Ikeda

cargo trade recession mol

The following “2021 New Year Online Message” was addressed to all officers and employees by President & CEO Junichiro Ikeda on January 4.

Happy New Year, everyone. I would like to wish the entire MOL Group family the very best as we begin the new year.

About the change of the president & CEO

We announced the appointment of a new president & CEO on December 11, 2020. I will pass on my duty to Vice President Takeshi Hashimoto as of April 1, 2021. I have high expectations that we will bring together all our strength and play key roles in the MOL Group’s next great steps forward under the leadership of our new president & CEO.

Personally, I will continue to do my utmost to help increase the group’s corporate value. We will face various hardships even in this new year, but let’s overcome them one by one to make it a successful one.

2020 in Review

Throughout history, mankind has experienced pandemic attacks time and again, but for the first time in the 21st century, we have faced one-COVID-19-on a global scale, and never before have we experienced such impact on our everyday lives, not to mention worldwide economic activity. I believe even most experts in the field of infectious disease could never have foreseen such an event. This pandemic has a significant impact not only on our group businesses, but also on our lives and workstyles. Logistics is a critical social infrastructure that supports the global economy. As an entity that plays a part in that, the MOL Group has adopted measures such as large-scale remote working and other steps to prevent the infection from spreading, based on our commitment to fulfilling our social mission: “Sustain the world’s logistics networks despite the pandemic,” while balancing that with efforts to ensure the safety of employees and others. In particular, I appreciate all the officers and crew members on our operated vessels, who remain on the front lines as essential workers. They continue to overcome hardships and mental burdens, such as anxiety about contracting the virus and restrictions on crew changes, which keep many of them at sea far beyond their initial contract periods. Backed by your brave efforts, the MOL Group has steadily accomplished its mission to ensure efficient worldwide logistics, and in turn keep the global economy running even in the face of this pandemic. As president & CEO, I would like to express my gratitude to all executives and employees for your contributions over the past year to maintaining global logistics through our business operations.

Next, speaking of our group business, the apparent impact such as a stagnation of cargo trade due to the temporary suspension of production all over the world, especially from April through July, had a significant impact on dry bulkers, car carriers, ferries and coastal RoRo ships, cruise ships, and so on. On the other hand, the performance of LNG carriers and FPSOs has remained in line with our initial outlook, as they generate stable profits mainly under long-term contracts. The supply and demand balance for our tankers turned favorable due to demand for offshore storage when crude oil prices hovered at a low level and we seized this opportunity to boost our results. And what is worthy of special mention under these difficult circumstances is our containership business, which initially faced the impact of stagnant cargo trade and gave us the greatest concern. Now, however, it is expected to achieve a significant increase in profits compared to the previous year by demonstrating its competitiveness and catching the wave of a rapid recovery in cargo trade since July. After overcoming operational teething problems in its first year (FY2018), ONE has steadily taken steps toward the goal of containership business integration-achieving competitiveness in the industry. While my evaluation shows strong performance during the recovery of cargo trade in this fiscal year, we still must question the agility of ONE’s response during the stagnant phase of the cyclical cargo trade. We continue to firmly support ONE as a shareholder.

While looking back on the past year, we must not forget the grounding and oil spill incident involving the Capesize bulker WAKASHIO. Cleanup work is still underway on the beach near the site. When I think about how the incident affected the lives of the Mauritian people and the natural environment, I gain a keen new awareness of the importance of safe operation. We spent about four months after the incident mapping out measures to prevent reoccurrence, and we will put them into action as a company-wide project. These steps include improving the quality of chartered vessels, which are an important element of global supply chains, and reviewing ship management, which underpins the duties of a ship operator. In addition, we will move steadily ahead to restore the environment in Mauritius and contribute to local communities-measures we announced in September to fulfill our social responsibility for the incident. We already established MOL (Mauritius) Ltd. there in October, and teams led by a member from MOL are working hard every day, standing with the people of Mauritius.

Progress on Rolling Plan 2020

2020 was the year that brought the COVID-19 pandemic and the ensuing global crisis, but this does not mean our group suspended measures to return to a growth trajectory. Looking back at the main results of 2020, the first point is the high-value-added LNG transport field, one on which we are concentrating our investments. Achievements during the year included delivery of three newbuilding vessels for the Yamal LNG project in Russia, our decision to join the Arctic LNG 2 project (Russia) , and the delivery of an LNG bunkering vessel and the start of LNG fuel bunkering service for large-scale containerships. Second is our projects in renewable energy, another field where we are focusing our investments. These include our move into the SOV business for an offshore wind farm in Taiwan, conclusion of a transport contract using a vessel equipped with the Wind Challenger, and the start of the Wind Hunter Project using a ship propelled by wind and hydrogen power. The third point includes Fleet Performance and Fleet Tour, which were released in sequence, in a series of FOCUS projects supporting autonomous sailing.

There is currently no alternative to a stagnation in the world economy, and therefore, our investment activities will show a temporary slowdown. But we have strategically moved ahead with our activities, mainly in the fields where we are concentrating our investments. On the other hand, we set a target of generating ¥100 billion in free cash flow in three years from 2020 through 2022, and we are controlling investment decision-making to achieve this target. Looking at progress on the theme “enhancement of organizational strength,” which we newly set out in Rolling Plan 2020, we have promoted the organization of internal cross-sectional teams for projects outside our existing organizational structure, and over 10 team projects are already in action. Affected by environmental changes due to the COVID-19 pandemic, workstyle reforms play a more important role than ever when it comes to improving productivity. New workstyles such as remote work and online meetings spread rapidly last year, and how well they enhance our productivity is key to boosting our competitiveness.

2021 Prospects

The impact of COVID-19 will continue even as we enter 2021, and we still cannot deny that cargo trade will sink into a double-dip recession until the beginning of spring. Are we well-prepared for a time of decreasing cargo trade? Can we respond with agility? We must always keep our antenna up to grasp trends accurately. Just as important, or even more so, is focusing on more significant changes in the world, changes that were triggered by the COVID-19 pandemic and continue to accelerate. We saw signs early on, but these changes rose to the surface as governments began to move in response to the pandemic. I imagine you are familiar with the term “Green Recovery,” the rapidly expanding move to leverage investments to address environmental issues. Considering this trend, decarbonization is an unavoidable issue for the ocean shipping industry, which for the time being relies on fossil fuels. While LNG will gain wider acceptance as a relatively low-carbon fuel, we must engage in development and use of alternative fuels that will promote decarbonization, and embody sustainability ahead of the global tide.

Given this situation, we have already started internal discussions toward our next management plan, “Rolling Plan 2021.” Actions in 2021 include ensuring a return to the growth trajectory as stated in the last fiscal year and staying ahead of the curve in responding to significant social and economic changes, which will come at a rapid pace. While our customers must address changes stemming from decarbonization and other issues, our group, which plays a key role in their supply chains, must also contribute. I see creativity and innovation to be the keys to success in our group’s future growth strategies. How can our group add value to customers’ supply chains? I will push forward specific company-wide actions, while connecting to future portfolio strategies and business strategies. To establish an organization supporting these actions, we will launch a dedicated division to plan and promote our environmental and sustainability strategies in April.

Looking ahead to the post-COVID-19 era, I would like you to gradually shift your attention to the MOL Group’s new mid-to-long-term growth scenarios. And for the first time in nearly 20 years, we have started reviewing our corporate principles and long-term vision, which will provide a philosophical basis for our growth scenarios. This does not mean that our course will change by 180 degrees, but I want 2021 to be the start of such activities as we draw up dramatic, company-wide growth strategies under the new corporate philosophy and long-term vision.

Commitment to safety

At the beginning of every year, I recommit to safe operation, but this year our attachment to safety goes deeper than usual. Just like with conformity to compliance, safe operation does not exist here in tangible form, and like our culture, it must be developed as a team. As we take to heart that safe operation is the fundamental value of our company and the foundation of our business, all of us must pledge that we can never again allow the occurrence of an incident like WAKASHIO.

As we look around us, it is difficult to be optimistic, but I believe our path will bring us back to a growth trajectory as we overcome the trials and turbulence of 2020. The move toward change will still be fast and strenuous, but let’s grow on a group-wide scale as we show our value-both socially and economically-as a sustainable company.

Finally, I want to pledge my commitment to safe voyages of all MOL Group-operated vessels. I wish you and your family a very happy New Year, as well as good health, happiness, and success in 2021.


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