With over 70 years’ experience transporting dry and liquid chemicals, Kokuka Sangyo’s President, Toru Maehara, sits down with the Worldfolio to discuss some of the challenges his firm is navigating through in the wake of the Covid pandemic.
Can you provide a brief introduction of yourself please?
I worked at Mitsubishi Gas Chemical for 35 years. In my last position at Mitsubishi Gas Chemical, I was involved in the procurement of raw materials, and I was in charge of logistics management as well. I was then posted
to this company in 2017. I became the president 8 days after the 2019 Strait of Hormuz attack. My experience in the shipping industry may not be that long, however, I have been involved in logistics through our parent company Mitsubishi Gas Chemical for many years.
Thank you for your introduction, Mr. Maehara. For the last two years, we have been living through the Covid pandemic which has severely disrupted logistics worldwide. Quarantine measures have made crew change more difficult, and when it comes to logistics, we have seen the halting of huge freight operations. Can you tell us how Covid affected your business?
Covid-19 did not cause much of an impact on our business since the number ofports we stop at are very limited. The crew change was a big issue for us because our vessels are manned by many Filipinos from Manila and their movements were often restricted by the combination of lesser number of international flights and new quarantine rules by Chinese authorities.
One of the things that has been compounded by the Shanghai lockdown recently, has been the over-reliance on China as a trade hub. When we interviewed the president of Nishitetsu, he explained to us how he believed that this was a big opportunity for Japan, and ports like Yokohama and Kobe could take traffic away from their Chinese counterparts. Do you agree with this sentiment?
We are dealing with liquid chemicals, whose facilities are very small. Maybe when it comes to dry cargo, whish Japan already have set up a series of big facilities, this country can increase its presence in the international trade; however, in terms of size, it is incomparably smaller than Chinese ports.
M/t Jose Progress, sailing the coast of Rotterdam
We know that the logistics sector is primed for transformation when it comes to digital technology. When we talk about ports, we could have robots automatizing the whole operation, and when it comes to sea routes, AI could be used to fully automate the navigation. To what extent have you digitalized your operations? What are some of the key digital technologies that you are integrating into your daily shipping operations?
In terms of dry cargo shipping, maybe automation is applicable when it comes to operating the harbor, and on the ships themselves, there have been experiments to do automatic docking. However, for liquid chemical transportation, automation and digitalization is quite a challenge. If it is a specialized chemical tanker, there may be some possibilities, but general-purpose chemical tankers need to have their cargo tanks cleaned every voyage. They must be washed manually according to the specificity of next chemical cargoes. There is a higher risk for chemical tankers to operate autonomously , however. Particularly in Seto inland areas, waters are very shallow and operations can be very difficult for large vessels. We still rely on experienced crew and pilots to navigate through those areas.
The DX and automation for shipping and navigation are may be more suited for operating in the larger international waters If it is close to Japan, it needs to be a manual operation. One of the areas in the shipping industry that is expected to apply DX is troubleshooting through remote accesses ; one such example is the use of personal devices through which shore personnel can receive the same feed as the on-board crew, live. Currently, if there is an accident, injury to the crew, or mechanical issues, the ship itself tries to go to the closest port. If that is not possible,she requests a tugboat for rescue. However, with the DX technologies, we expect to do a remote diagnosis both on the crew‘s health condition as well as mechanical failures.
Your company specializes in transporting liquid chemicals. Also, you have more than 40 years of history in a very specific type of shipping, which involves high-temperature molten chemical carriers. Could you explain to us the specifics of this business and the challenges you have faced?
In 1947, Kokuka Sangyo Co., Ltd. Was founded by of the founding members of what has become a giant chemical company today, Teijin Limited. We started as an insurance agency who also sold coal. We entered the shipping industry in 1956. At that time, we focused on the transportation of liquid chemicals used by Teijin. One of our specialties was methyl alcohol methanol, and ships were used to transport Mitsubishi Gas Chemical’s methanol from Niigata. Later, Mitsubishi Gas Chemical started to invest in the company. Teijin was the manufacturer of material for polyester production, but since they stopped their chemical-related business, the company decided to let Kokuka Sangyo go. Mitsubishi Gas Chemical then acquired 100% of our company shares after that. With the new strategy of devised by Mitsubishi Gas Chemical, we developed ships for Phthalic Anhydride, as well as molten caprolactam and liquid ammonia. Mitsubishi Gas Chemical used to produce methanol at their Niigata factory, but the main production sites are now outside of Japan. Our company mission has changed, alongside Mitsubishi Gas Chemical, and we have re-designed our business focus as well.
Right before the 2008 global financial crisis, we were placing order for more tankers, including a gas carrier to be added to our fleet. At that time, shipbuilders were so busy keeping up with new orders that we could not find a single shipyard who can make ships for us. All shipyards in Japan, Korea, and main shipyards in China were allfully booked too, so we had to work with a smaller, less-experienced shipyard in China. This resulted in building a series of ships that did not work properly. In addition to this misfortune, the financial crisis forced our company to reduce the size of our fleet considerably. Now we are only focusing on liquid chemical transportation. The downfall we experienced after 2008 almost led us to bankruptcy, and Mitsubishi Gas Chemical realized that it was too risky to own 100% of a shipping company without a partner with professional logistical roots. We then partnered with a Japanese logistic company Tatsumi Shokai and has been so with a 50:50 company share devide with Mitsubishi Gas Chemical.
Could you explain to us about methanol and molten sulphur transportation? They are very volatile and very flammable liquids. How do you ensure the safety of tanker ships, their crew, and on-board cargos?
Mitsubishi Gas Chemical has an extensive history in producing methanol and knows what is required to build a good ship Our very first methanol transportation took place between Niigata plant and Matsuyama, and during wintertime, the waves near Niigata were famously very high and dangerous to operate. We worked hard with shipbuilders and Mitsubishi Gas Chemical in order in designing of our ship. After the ship was delivered to us, we perfected the handling with professional seamanship, but we believe it was a good idea to incorporate the product knowledge of a chemical manufacturer into shipbuilding.
In previous interviews with logistics companies, one of the themes that we have discussed is that of new sea trading routes. For non-ice-breaking vessels new sea trading route could be extended in the Arctic due to climate change. How realistic do you think that trans-Arctic routes are for a company such as yours?
It is true this this trans-Arctic route has been a result of global warming; nonetheless, I have a very mixed feelings about it. We are trying to stop this global warming issue; however, it is leading to changes in navigation. If this route is actualized, the transportation distance from Japan to Rotterdam, our primary port in the Netherlands, would be reduced by 30 – 40%. That would actually reduce the amount of fuel required for transportation. However, for geo-political reasons and security, it may be an issue, as it needs to go around Russia. Also, shipping navigation always requires supply ports. There is also a need for supply/ emergency ports or outpost to stop by in case ships suffer from mechanical troubles. If people are going to invest to build and keep such ports, I feel that the overall shipping cost in the Arctic would not be so cheap, and we cannot consider it a good business model.
The subject of green environment is something that allindustries worldwide must now contend with. Here in Japan, the Japanese government and the logistics sector have passed a mandate to reach carbon neutrality by 2050. First, do you think that it is possible for the shipping industry to be carbon neutral by 2050, and secondly, how is business contributing to climate efforts and environmental care?
The overall carbon emissions of the domestic shipping industry is actually less than 1% of the total Japanese CO2 emissions in Japan, but to decrease the amount of CO2 emissions requires a lot of cost. Over 95% of domestic shipping companies in Japan are small- and medium-size operations, and therefore it is very difficult financially for those companies to become both commercially successful andeco-friendlier. Also, the ships themselves have a life span of around 20 years that means that the ships that have been recently made need to operate with the same combustion engine for the next 20 years. It is very difficult to set a target for carbon neutrality by 2050with old less environmentally friendly. The International Maritime Organization IMO has called for the reduction of greenhouse gases by 50% from the 2008 level by 2050, and to make the industry carbon neutral by the end of the century. If we were to swap from heavy oil to more eco-friendly energy sources such as ammonia, hydrogen, or methanol , it would require a bigger fuel tank. Naturally, this would reduce the amount of cargo that could be transported and it may not be economically viable. We are in a continuous process of trial and error within the maritime cluster, in search of best solutions.
M/t Jose Progress, sailing the coast of Rotterdam
In 2020 and 2021, new ship orders were at an all-time low, because shipping companies were worried about new environmental regulations; for example, new lower NOx regulations. How do you think the government, the shipping companies and their clients can better communicate to ensure more efficient industry?
There has been some communication between the government, the ship owners and operators and the customers of the ship operators, and there have been some discussions other than environmental-related issues. In terms of environmental approaches, the government just set up the goal to make Japan carbon neutral by 2050, so the whole country is moving towards this goal. However, in the shipping industry, as I have mentioned before, it is inevitable that this carbon neutrality target will be more lenient than the other industries. However, other regulations, for examplein safety, there have been ongoing discussions about the actual operation of the ships. There have been calls for the regulation to be less strict approach to be adopted.
Japan is an island nation, so dependency on maritime shipping is quite high, and we are experiencing shortages of crews. The younger generation is not interested in working as a crew member on a ship, and some ships have crew members over 70 years old. The shortage of crews is actually a grave issue for Japanese maritime shipping. The government is discussing this issue with the logistics companies and their customers. However, there is no definitive solution to this problem, and our company is struggling when it comes to crew management.
One solution to crew shortage is adaptation of automation inside the ship. By implementing automation technology on board, we can reduce the number of crew required in our operations. Also, another option is to use a bigger ship, which would make our operations more efficient. However, Japanese ports are small and cannot accommodate for larger ships, and building new infrastructure for large ships is very expensive ; therefore, the automation approach is more viable for the industry to go forward.
The concept of the freedom of navigation is fundamental to the maritime industry. In recent years, there has been a number of incidents at the Horn of Africa and in the case of your company, an incident at the Strait of Hormuz in 2019. Geopolitical problems are increasingly becoming an issue for ship owners and operators. How do you deal with these geopolitical risks? Also, what were some of the measures that you took after the 2019 incident?
Since the 2019 incident, we have been asked many questions on how we are going to take countermeasures; however, we do not have a definite answer to these questions. For pirates, we do not navigate the pirate areas very often. If we do need to navigate those waters. We are also dependent on the support from multinational task force working in dangerous waters including the Gulf of Oman and Gulf of Aden. We try to obtain potential piracy information, but we occasionally hire our armed guards onboard just in case.
Since 2001, 50% of your company shares have been owned by Mitsubishi Gas Chemical, and you have opened shipping routes to Saudi Arabia and Venezuela. What are the benefits of being under the umbrella of Mitsubishi Gas Chemical?
Brunei, Saudi Arabia, Venezuela and Trinidad an Tobagos are places where Mitsubishi Gas Chemical owns a plant to produce methanol. If Mitsubishi Gas Chemical were to open a new plant elsewhere in the world, we would provide our logistics services for them. However, we are not in the position to develop our own navigation route by ourselves. Rather we follow suit with Mitsubishi Gas Chemical’s strategy. We are not the only company that transports Mitsubishi Gas Chemical’s methanol, but we take care of the majority of their product, and work very closely with them.
Your company works with a lot of major Japanese firms, not only Mitsubishi Gas Chemical, but others, such as Marubeni and Sumitomo Chemical, for example. Do you also collaborate with international companies, or are you looking to do so in the future?
As I explained about our company history, we had a time when we truly struggled financially. At that time, we had an overseas base in the Philippines, and seven other locations in Japan. Currently, however, we only have our headquarters in Tokyo; therefore, we first need to make sure we have a stable footing before we think about overseas expansion again.
You mentioned that you became the president in 2019. Is there a particular goal or objective that you would like to achieve as the president of this company?
I feel that the maritime shipping industry is very old-fashioned. That is one of the reasons why we cannot secure a stable number of crews both onshore and offshore. It is very important to open up this industry more, and also to mitigate this manpower shortage with the incorporation of DX. Applying some digital technologies is a key for the growth of this industry. Our company has been operating for 75 years, so our next target is 100 years. It is my duty and mission to stabilize the company’s finances and contribute to the sustainable growth of the company. We will continue to transport Mitsubishi Gas Chemical’s products in a safe and sound manner, and through accumulating experience, we hope to gain the trust of other customers, and diversify our channels.
Mitsubishi Gas Chemical is currently producing methanol, but also used to produceammonia, which is considered as a next-generation power source. There has been a lot of attention placed on these two chemicals, and also our transportation as well. We have a good long experience in carrying methanol and ammonia. Since we have this specialty, we can not only be flexible but also comment to the government proposals over maritime safety/ environment etc. using our expertise. We are more focused on imported chemical transportation within Japan these days. If we were to transport ammonia or hydrogen from overseas countries, it would require a much bigger ship. Transporting within Japan is our strength.