NYK CEO warns: Post-cold war international order unsustainable, signalling uncharted waters ahead

The maritime industry stands at the nexus of geopolitical intricacies, grappling with unprecedented challenges that demand astute navigation and strategic foresight. The latest attacks in the Red Sea against merchant ships come on the back of a series of black swan events, each more intricate and challenging than the last.

Port of Hamburg/Illustratio; Image by Offshore Energy

The pervasive impact of the COVID-19 pandemic cast an extensive shadow over global shipping, disrupting supply chains and imposing significant hardships on seafarers stranded at sea due to crew change restrictions. This health crisis, with its far-reaching consequences, unfolded against the backdrop of geopolitical turmoil, exemplified by the recent conflict between Ukraine and Russia. The maritime sector found itself navigating not only the stormy seas of a pandemic but also the turbulent waters of geopolitical tensions.

As if in rapid succession, the industry is now grappling with the intensifying conflict between Israel and armed groups in Palestine, further underscoring the vulnerability of global shipping to geopolitical upheavals.

Speaking in a New Year’s address at Nippon Yusen Kabushiki Kaisha’s (NYK) head office in Tokyo, the company’s President Takaya Soga delivered a somber message suggesting that ‘the international order established since the end of the Cold War is no longer sustainable.’

“While COVID-19 has finally begun to wind down, global trends are becoming increasingly confusing. The situation is more than just “heightened geopolitical risk,” with the ongoing Russian-Ukraine conflict, the battle between Israel and Hamas, and the Houthis’ threats against merchant vessels off the coast of Yemen. Divisions are occurring everywhere worldwide, and the international order established since the end of the Cold War is no longer sustainable. When the term “economic security” is heard in many countries, we cannot make an immediate decision about the position of the NYK Group, which is expanding its business worldwide. However, let us keep our antennae up and try to find the essence of the situation,” Soga said.

“Many elections are scheduled this year, with major elections in 45 countries, including emerging economies. Those that are likely to affect Japan and the NYK Group are Taiwan’s presidential election in January, the Russian presidential election in March, the general elections in South Korea in April, the first European Parliament election after Brexit in June, and the US presidential election in November, all of which require close attention. In any case, we pray for peaceful days ahead when people worldwide will be happy with the values we offer.”

A similar view was provided by MOL President & CEO Takeshi Hashimoto and Kawasaki Kisen Kaisha’s President and CEO Yukikazu Myochin in their respective New Year’s speeches.

“Last year, the global situation became more chaotic, and it was a time of renewed awareness of the impact of geopolitical risks on our group’s business. The Russian-Ukrainian conflict is still far from resolution, and there are concerns that the fighting may be prolonged. Last November, clashes between Israeli and Palestinian armed groups erupted, and Houthis captured a merchant ship in the Red Sea. U.S.-China relations remain strained, and there are concerns about how this will affect the international order, international cooperation and global economy.

“On the economic front, inflation and interest rates continued to rise worldwide, and our group’s business faced the impacts of soaring ship prices, tight shipbuilding capacity, and a softening containership market,” Hashimoto.

“Over the past year, we also felt the deterioration of the global environment due to a series of disasters caused by extreme weather around the world. Countries’ efforts to reduce greenhouse gas (GHG) emissions are not going smoothly, and they are reportedly having difficulty achieving their targets under the United Nations Framework Convention on Climate Change (UNFCCC). The world’s transition to alternative energy sources still faces many challenges, and our responsibilities in the shipping industry are growing as well.”

Hashimoto also expects the upcoming elections, including those in the United States, to create more complex and uncertain geopolitical conditions.

On the economic front, MOL presumes that the economy would gradually return to a growth trajectory as inflation in Europe and the U.S. subsides and investment recovers due to interest rate cuts. In India and Southeast Asia, business opportunities are expected to expand due to robust domestic demand, government-led infrastructure investment, and the resulting increase in demand for energy.

On the other hand, it is anticipated that it would take some more time for the Chinese economy to return to a stable growth trajectory due to real estate problems and sluggish consumer spending.

“The ocean shipping industry is acutely affected by global conditions, but under our corporate mission to ensure the prosperous lives of people around the world through open trade, we will define the optimum strategy and engage earnestly, while taking into account geopolitical risks and economic trends. This year, we will focus on one particular item among our group’s growth initiatives,” Hashimoto added.

Over the past year, MOL welcomed the launch of Japan’s first LNG-fueled ferry and invested in wind power and other decarbonization projects. In addition, the company has invested in LNG carriers and offshore projects.

In the ocean shipping business, the shipowner placed orders for environmentally friendly vessels in the dry bulker, tanker, and car carrier segments, and paved the way for MOL Chemical Tankers’ acquisition of Fairfield Chemical Carriers.

MOL continues to pursue aggressive investment in the cruise business, and the future of this business depends on the success of the new service and brand. To that end, the company’s cruise ship Mitsui Ocean Fuji, purchased last year is set to go into the company’s service in December 2024.

“In addition to environmental measures through the use of currently available technologies, we will aim to be on track to achieve zero-emission vessels at an earlier stage, and we intend to lead the industry in technological innovation,” Hashimoto said.

“Furthermore, this year brings the start of full-scale preparations for the adoption of International Financial Reporting Standards (IFRS) as part of the upgrading of our business management. This is a key initiative to improve management transparency and globalization.”

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K’Line’s President believes that the increasing geopolitical risks and their impacts on the supply chain have the potential to jeopardize the freedom and safety of navigation, which is the foundation of international maritime transport.

“The global economy has increased the degree of uncertainty surrounding the business environment such as rising inflationary pressures, the tightening of monetary policy in countries around the world, and the impact on the Chinese economy of the real estate downturn. A careful response and attentiveness are required in business operations,” he said.

 “To continue to solidify our management base amid the accelerating pace of change, let’s properly analyze and swiftly respond to the constantly changing situation, demonstrate a renewed awareness of sustainable contributions to society as social infrastructure befitting these times, treat the changes we currently face as opportunities to think through things and take steady action to achieve growth and enhanced corporate value as a professional in the shipping industry.”

K’Line is set to start operations as part of the world’s first full-scale carbon capture and storage (CCS), the Northern Lights project, as the marine transport of liquefied CO2 sets off in Norway.

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“We will bring our efforts to date to fruition as a new business and steadily link them to the businesses of offshore wind power support vessel and the transport of new forms of energy such as hydrogen and ammonia,” K Line said.

A turbulent start of 2024

The main worries for shipping this year were supposed to be compliance with the EU Emissions Trading System (EU-ETS) as well as the teething issues in the initial stages of the regulation’s implementation, and not ships being targeted by anti-ship missiles while transiting the Red Sea.

The ongoing geopolitical developments and conflicts worldwide are casting a formidable shadow on global efforts to mitigate the impact of climate change, particularly within the shipping industry.

The imperative to transition from fossil fuels to more sustainable alternatives faces severe challenges as geopolitical tensions divert attention and resources away from environmentally conscious initiatives.

The lack of global unity and persistent conflicts hinder collaborative efforts necessary to address climate change comprehensively.

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The shipping sector, a pivotal player in global trade, finds itself ensnared in this predicament, where the pursuit of alternative fuels and green technologies falls victim to the tumultuous geopolitical landscape.

The absence of a unified global governance framework further exacerbates these challenges, as international organizations struggle to enforce cohesive strategies.

As the world grapples with conflicts, the urgent imperative to collectively combat climate change is stifled, leaving the planet and its vital industries, including shipping, vulnerable to the enduring repercussions of geopolitical discord.

To navigate these challenges, the shipping industry must prioritize adaptability and risk mitigation. Diversifying supply chains, investing in advanced technologies for remote operations, and enhancing communication and coordination among stakeholders are crucial steps. Collaborative efforts within the industry and with international bodies can facilitate the development of standardized protocols for crisis response.

Moreover, the industry needs to engage in proactive diplomacy and advocacy to safeguard its interests amid geopolitical tensions. As the established international order faces scrutiny, the shipping sector must actively contribute to shaping new norms and agreements that foster stability and cooperation.