TOKYO — Yusen Logistics is focusing on building supply chains in Mexico, Myanmar and Cambodia, as the former provides customers easier access to the North American market and latter two allow shippers to diversify their sourcing.
Closer to home, Japanese customers of the Tokyo-based logistics provider are more confident in the future, largely because of the government’s economic reform efforts, known as Abenomics, said Taiji Kitagawa, Yusen executive officer of business development and planning department. Aside from Mexico, Myanmar and Cambodia, the NYK Group subsidiary is investing in Brazil, and, most recently South Africa.
Yusen had planned to enlarge its presence in Myanmar in November by opening a subsidiary in the Southeast Asian country. The Mynamar government is still determining the ownership ratio for foreign companies partnering with local logistics companies. Yusen has already assisted Japanese textile companies in Myanmar, which is undergoing dramatic political and economic reforms. To expand operations there, however, Yusen needs the government’s blessing to jointly operate with a Myanmar logistics firm.
Yusen aims to provide forwarding, arrange trucking services and facilitate customs clearance to garment and consumer good producers operating in Myanmar, Kitagawa said in an interview at Yusen Logistics’ corporate headquarters in Tokyo.
Despite the flood of international business interest in investing in the historically cloistered country, building supply chains in Myanmar won’t likely be easy. The country’s major seaport and airport are still small and in an “immature situation,” and regulation pertaining to forwarders isn’t yet clear, Kitagawa said.
The logistics provider's subsidiary in Cambodia will begin operations Nov. 1, allowing it to tap the country’s growing garment industry and demand for consumer goods. A major Japanese supermarket customer, for example, is looking to expand in Cambodia. The logistics company’s investment in the Cambodian and Myanmar markets will also allow it to expand its cross-border network that already exists in Vietnam and Thailand.
Yusen garment customers are looking to shift some of their production away from China to Bangladesh, Cambodia and Vietnam to mitigate supply chain risk and sometimes cut costs. But despite the international attention paid to Bangladesh garment factory accidents, Kitagawa said shippers there aren’t looking to leave the country, which was hit with a factory fire near the country’s capital, Dhaka, on Tuesday, killing at least nine people, according to reports.
Yusen is also focusing on developing the Mexico market not just because of booming trade with the United States, but also because of its potential to become a Latin American manufacturing powerhouse. Just as Thailand serves as the major auto industry production source for Asia, Mexico is on the path to do similarily for Latin America, Kitagawa said.
More than 70 percent of Yusen’s Mexico business is tied to the auto industry. The logistics provider already counts Mazda and Honda as customers but wants to gain even more business from the OEMs that serve the carmakers.
Kitagawa said Brazilian business will grow in the long-term even if the South American nation has hit an economic bump in recent months. Yusen last month opened an office in Durban, South Africa, positioning it to aid customers in the sub-Saharan region. NYK Line has an office in Johannesburg.
The devaluation of the Japanese currency — one of the key planks of President Shinzo Abe’s economic reform initiative — has already aided Yusen’s Japanese electric and auto part manufacturers by making their exports more competitive, Kitagawa said.
He does expect that if Abe’s proposed consumption tax hike — from 5 percent to 8 percent — takes effect next year, domestic spending will be dampened in the short term. Ultimately, though, thanks to a rebounding stock exchange, a reflection of business confidence, export growth and government stimulus will steer the Japanese economy toward more growth, Kitagawa said. The prospect of Tokyo hosting the Olympics in 2020 could also be boon for Yusen.
Japanese customers’ trade with China is also growing, after plummeting in the fall of 2012, when territorial tensions between the two countries over disputed islands in the South China Sea hit a boiling point. Japanese carmakers were hit particularly hard, and auto parts makers producing in Thailand also suffered. Yusen’s customers now have recovered about 85 percent to 90 percent of the trade lost over the clash.
Beijing’s policies are still having a negative impact on Yusen’s business, however. China’s new value added tax of 6 percent on logistics services and 11 percent on domestic transportation has spurred Yusen to try to use collect billing instead of pre-paid billing. The logistics firm has also has some success in avoiding the VAT by billing via a Chinese subsidiary, but neither method has been entirely successful in averting the additional costs, Kitagawa said.
Just as its customers are diversifying their supply chains, Yusen is looking into shifting some its operations out of Tokyo. He pointed to how Panasonic has moved its procurement arm to Hong Kong and Singapore and said Yusen could do similarily in five to 10 years.
That path appears to be the next step to Yusen better positioning itself as a more international logistics provider. The integration of NYK Logistics, Yusen Logistics (Americas) and Yusen Air & Sea Service into Yusen Logistics has given the company larger bidding heft for contracts with major multination shippers, Kitagawa said.