Kumiai managing director says Singapore’s ‘relentless effort’ to turn location into a first-class shipping hub was a deciding factor in expanding abroad
Kumiai Navigation was one of the few early Japanese shipping companies to establish a presence in Singapore. The subsidiary of Kumiai Senpaku has witnessed the transformation of the Lion city from a container port into a first-class shipping hub.
Speaking to TradeWinds, Kumiai Navigation managing director Tomomaru Kuroyanagi, who is primarily involved with the company’s Singapore start-up, acknowledges the government’s relentless effort in marketing the country as a maritime centre, based on the nation’s infrastructure, strategic waterway location and financial incentives.
Kuroyanagi came to Singapore 23 years ago and spent almost a year gathering information and laying the groundwork for Kumiai Navigation. The shipowning company was officially formed in 1995.
“I am sorry to say this, but at that time Singapore was not a first-class shipping hub as there were very few companies here. Tanker trade was considered a major market but there were very few activities. As for the dry bulk sector, no one was here,” he said.
Kuroyanagi says Japan’s three big shipping companies — Nippon Yusen Kaisha (NYK Line), Mitsui OSK Lines (MOL) and Kawasaki Kisen (K Line) — had already set foot ashore but they were only engaged in containerships.
“Singapore was more of a container port,” he said. “But over the 20 years, the Maritime Port Authority (MPA) of Singapore has carried out impressive work and turned the country into a major shipping centre. Everyone is here now… charterers, cargo owners, brokers and banks and one does not need to travel abroad to meet up with them.”
Privately owned shipping company Kumiai Senpaku set up Kumiai Navigation to expand its business beyond Japan.
“Our parent company was only concentrating on Japanese clients then and we could not see further growth from Japan,” recalled Kuroyanagi.
High Japanese taxes of almost 50% were another reason that led Kumiai to seek an overseas office. “In Japan, all industries are taxed the same amount,” he said. “To be competitive with foreign shipping companies such as the ones from Hong Kong and Greece, we need to be on the same level playing field.”
An expensive Japanese yen of $1 to less than ¥80 in the mid-1990s was another reason that caused Kumiai Navigation to seek an overseas office. “Shipping business is carried out in dollars but some of our clients were paying in yen. We had to do something to lower our operating costs,” he explained.
After much consideration, Kumiai Navigation chose Singapore as its outpost over Hong Kong and Vancouver.
The company discounted Hong Kong as its sovereignty was to be transferred from the UK to China in 1997. “We did not know what the future was for Hong Kong then,” said Kuroyanagi.
MPA assistant chief executive of development Tan Beng Tee is said to have played a leading role in convincing foreign shipping companies to set up offices in Singapore.
“Tan is a strong sales person,” said Kuroyanagi. “She visited Japan and promoted the Approved International Enterprise Scheme that gives tax benefits.”
Kuroyanagi recalled that he had his fair share of problems when he first arrived in Singapore. He was confident that he would not have any problem understanding the locals and communicating with them. However, it turned out to be a challenge during the initial period.
“I understood less than 30% of what the accountant was trying to tell me when I first came,” said Kuroyanagi. “I could not establish our office if I did not understand him. Because of that, I visited his office every day and spent one to two hours there until I understood him completely.”
Kumiai Navigation started out with six vessels comprising two tankers, three very large gas carriers and one iron ore carrier that it acquired from Kumiai Senpaku. Today, the company has almost tripled its fleet with 14 ships trading and three newbuildings. Two-thirds of its vessels are bulkers.
“Some may think our fleet growth is small but that is fine with us,” said Kuroyanagi. “We order newbuildings against charter employment.”
Kumiai Navigation describes its current finances as healthy.
Like most shipping companies, Kumiai Navigation was also affected by the collapse of the dry bulk market. The company said it ordered two newcastlemax bulkers in 2014 at more than $100m apiece on the back of a charter to Global Maritime Investment (GMI). However, the contract became void when the UK-based company filed for court receivership two years ago.
“We knew the people in GMI for many years,” said Kuroyanagi. “We had one ship on charter to them and the company was doing very well. It was a credible company and Harvard University was also one of its investors.”
Despite the termination of GMI’s charter contract, Kumiai Navigation honoured its newbuilding deal with Nantong Cosco KHI Ship Engineering (Nacks). The yard delivered the first ship, the 205,000-dwt KN Amethyst (built 2017), which is now on charter to BHP Billiton. The second vessel to be named KC Arcadia is due to roll out of the drydock next month. It will replace one of Kumiai Navigation’s existing ships.
The company says it will continue to operate out of Singapore as the maritime industry receives strong government support and due to the country’s attractive tax incentives. “The Singaporeans are highly educated and intelligent,” Kuroyanagi said. “If one pays the right remuneration, you will get good staff.”
On the other hand, rising living standards and costs in the Lion city pose challenges to shipping firms. “One probably needs to operate three to five vessels to justify the costs of having an office here,” Kuroyanagi said. “Manpower expenses here are higher than in Japan while cost of office space is about the same.”
According to an MPA spokesperson, there are more than 30 Japanese maritime groups with diverse operations in Singapore. These include MOL, NYK Line, and K Line; trading companies Mitsubishi Corp, Marubeni Corp and Mitsui & Co; Japanese mega-banks Bank of Tokyo-Mitsubishi UFJ, Mizuho Bank and Sumitomo Mitsui Banking Corp; regional banks Iyo Bank, Hiroshima Bank and Fukuoka Bank; as well as the Japan Club.