fy2013 business environment and results...yusen logistics (ylk) is a leading japanese total...

17Annual Report 2014

Yusen Logistics (YLK) is a leading Japanese total logistics provider with 478 locations in 40 countries worldwide occupying a warehouse space of over 2

million square meters. In FY2013, we established new subsidiaries in Cambodia and Myanmar. To achieve our future of being to be the No.1 logistics

company in Asia and one of the top 5 logistics companies worldwide, we will combine our resources, build on our strengths, fortify our corporate

governance, enhance compliance, and promote our human resource strategy.

FY2013 Business Environment and ResultsIn the international logistics markets, although ocean freight forwarding progressed steadily in Asia, air freight forwarding did not substantially improve

despite a gradual upward trend.

Under such conditions, the YLK Group's freight volume in the ocean freight forwarding business greatly exceeded that of the previous fiscal year (ended

March 31, 2013), mainly in Asia, due to business integration and expansion. For air freight forwarding, freight volume was below the level of that in the

previous fiscal year, however, from the third quarter, freight originating from Japan recovered gradually and as a result reached the same volume as last

year. Moreover, the Project Re-engineering Yusen Logistics program to promote the streamlining of operations in administration, sales and business

divisions, and enhancement of cost competitiveness successfully contributed to profit improvement.

Overview of the Medium-Term Business Plan"GO FORWARD, Yusen Logistics"In October 2010, Yusen Air & Sea Service integrated with NYK Logistics Japan and Medium-Term Business Plan, titled "GO FORWARD, Yusen Logistics",

was established with FY2011 as its initial year.

Although the terms "Integration", "Fusion" and "Dramatic Progress" were mentioned in the plan, "Fusion" required more time than estimated and "Dramatic

Progress" was not achieved. The actual market environment greatly changed from conditions that existed when the plan was initially formulated and we fell

short of reaching performance results and volume targets.

However, in these three years, the progress we made in delivering "Fusion" across the new organization, Yusen Logistics, represents an enormous

success.

The ocean freight forwarding business expanded to a level surpassing the market due to sales growth mainly in freight originating from Asia. The air freight

forwarding business was sluggish overall but showed signs of bottoming out in the final fiscal year. In the contract logistics business, we aggressively

expanded sales through investments and other initiatives mainly in South Asia.

We expanded our business through proactive investment in 'Priority Target Areas' - Southeast Asia, namely Vietnam, Indonesia and Thailand, together with

China and India and in "Emerging Markets" - Russia, Brazil, Bangladesh, Cambodia and Myanmar.

Management

18 Annual Report 2014

Outline of the New Medium-Term Business Plan"GO FORWARD, Yusen Logistics -Next Challenges-"When formulating the new Medium-Term Business Plan, we extended the MISSION, VISION and VALUES set forth in the previous Medium-Term Business

Plan and articulated the Group's mission, "Contribute to enriching society and to enhance the value of our Group through logistics services that meet

clients' needs".

In the new Medium-Term Business plan titled "GO FORWARD, Yusen Logistics -Next Challenges-", we will reinforce our management infrastructure to

minimize any adverse economic impact to the Company, and implement our "Growth Strategy", "Operational Strategy" and "Investment Strategy" in order

to achieve sustainable growth.

Initiatives to Strengthen Corporate GovernanceThe YLK Group began new initiatives to further strengthen corporate governance.

Appointment of one Outside DirectorAs a company with board of corporate auditors, the YLK Group's Board of Corporate Auditors is composed of four corporate auditors including two

independent corporate auditors in the fiscal year under review. At the general meeting of shareholders held on June 27 2014, one outside director was

appointed increasing the number of directors of the Company to seven. The Company will work to ensure management transparency and efficiency to

enhance governance.

Building a global compliance systemIn April 2014, the Company newly established Legal Affairs Department with the objective of further buttressing compliance. This Department enhances

our legal affairs functions not only in Japan but also at all overseas Group companies and promotes the formulation of a global compliance system. We

assigned one staff attorney capable of handling any matters relating to compliance.

Initiatives to Foster Global Human Resources and PersonnelDiversificationWe promote global human resources (GHR). This involves not only transferring Japanese employees overseas but also promoting the exchange of

personnel between overseas Group companies. Our plan is to establish a department that can implement a human resource strategy which will develop

our employees on a global scale. To foster professional managers and salespersons, the YLK Group also provides training programs such as the Senior

Management Program and Global Sales Enrichment Program (sales training).

Yusen Logistics actively supports promoting women to managerial positions, across the company.

Strengthening CSR InitiativesFor our environmental policies, the YLK Group is conducting activities on a global scale intended to decrease the volume of greenhouse gas emitted by all

of our locations worldwide, reduce greenhouse gas emissions through tree planting and conserve biodiversity.

In addition, we proactively conduct cleanup (garbage pickup) activities implemented by employees at locations worldwide and other engage in other

initiatives to contribute to local communities.


Shareholder ReturnsThe Company recognizes the return of profits to shareholders as one of its top priorities. The Company's policy is to offer a stable dividend within the limits

set by business results and to steadily raise shareholder returns by working to increase corporate value through YLK Group business expansion and

growth.

For fiscal 2013, the Company set the year-end dividend at ¥9 per share, the annual dividend to ¥18 per share, including the ¥9 per share interim dividend.

We thank all of our shareholders for their support.


Yusen Logistics Czech to Start Using CNGTrucks Reducing EmissionsYusen Logistics Czech has launched a unique project in Slovakia to use

trucks powered by compressed natural gas (CNG). The new solution for

environmental friendly was proposed by our customer, an automobile

company, to reduce emissions by employing a CNG-powered unit for the

transportation of parts to plant. Using CNG for the delivery of engines

from Hungary to Slovakia will eliminate more than 20% of CO2 emissions

per vehicle yearly compare to standard diesel engine truck.

CSR Activity Policy

Given the meaning of CSR (Corporate Social Responsibility), corporate activities that focus only on compliance are incomplete. Indeed, companies today

are required to go a step further and understand that they are members of society and must therefore give due consideration to social ethics, human rights,

the global environment and local communities. Embracing this change in the social environment, the YLK Group is tackling its corporate social

responsibility sincerely, determined to meet the expectations of shareholders while aiming to achieve sustainable development.

CSR - Our Activities -The YLK Group engages in various activities with its CSR activity policy.


Environmental Day at Yusen Logistics BeneluxEvery year Yusen Logistics Benelux organizes an "Environmental Day" in

Belgium.

Last year eight staffs worked together with the nature conservation

association "Natuurpunt" and helped to remove the weeds from the

grasslands allowing rare orchids to have more space and grow freely in

the nature reserve "Oude Landen", just north of the city of Antwerp. This

area is famous for its extremely rare orchids and birds.

Environmental Load Data Collection ActivitiesUp to the fiscal year ended March 2010, we conducted environmental

load data collection activities as part of the NYK Group's environmental

activities. As a new initiative, we developed a system for managing

environmental load data, which came online in the year ended March

2011. Using this system to collect environmental load data for all group

companies, we aim to reduce environmental emissions from each

business site by analyzing the emissions data in more detail than before.

ISO14001 CertificationThe YLK Group including the Company acquired ISO14001 certification at 14 European and other companies and 52 sites via the Company's Global

Multi-site System.

The Group acquired this certification for its forwarding services including global logistics services.

Based on the ISO14001 certification, internal audit and investigation by a third party are being conducted to ensure that the environmental management

system of the YLK Group is effectively functioning. At the same time, necessary corrective actions are implemented.

The renewal of the certification was approved following the investigation conducted by a third party in February 2014, and it will be effective until March 31,

2017.

ComplianceThe Company adopts a Code of Conduct for all YLK Group employees. The Code of Conduct ensures that our company is in line with social standards. It

requires each YLK Group employee not only to observe laws and regulations, but also to carry out the day to day operations and business activities in

accordance with corporate ethics and social morals.

Our aim is to ensure that we win recognition from the society and are respected as a trustworthy company. The Company has also put together a Group

Compliance Manual, which requires all officers to take initiative, and group employees to deepen their understanding of compliance.


The Company does not have an organization or employees assigned

specifically for the purpose of supporting the outside director and

independent corporate auditors in the execution of their duties. However,

support systems are in place. Regarding proposals to be deliberated by

the Board of Directors, the outside director is briefed in advance by the

departments making the proposals. Independent corporate auditors are

briefed on such matters by full-time corporate auditors in advance and

receive additional explanation, as necessary, from a person responsible

for the organization concerned with the proposal to be deliberated on by

the Board of Directors.

Auditors

Basic Stance on Corporate Governance, Capital Structure, CorporateAttributes, and Other Basic InformationThe Group's mission is to maximize the Group's corporate value by offering sophisticated, high-quality logistics services that fulfill customer needs, and

thereby contribute to the enrichment of society. For the accomplishment of this mission, the Company recognizes the importance of ensuring management

transparency with timely and appropriate disclosure and strengthening management supervision.

The Company endeavors to continually reinforce and enrich corporate governance systems with the objective of progressively enhancing corporate value

and spurring growth of the Company, thereby seeking to merit the confidence of shareholders and other stakeholders.

Governance Systems Support System for the Outside Director andIndependent Corporate Auditors


Matters Relating to Business Execution, Audit and Supervision,Nomination, Compensation Setting and Other Functions(Overview of Current Corporate Governance Framework)The Company has a system where the directors perform their duties properly and efficiently in accordance with their authority and the decision-making

rules stipulated in the regulations of the Board of Directors and the rules for submitting proposals to the Board of Directors. The Company has seven

directors. The directors pass resolutions about matters stipulated in laws and regulations, the Articles of Incorporation, and other important management

issues at ordinary Board of Directors meetings, which are held once a month, or extraordinary Board of Directors meetings, which are held as needed.

Furthermore, the Company has introduced an executive officer system. The Board of Executive Officers, which is made up of 19 executive officers,

including executives who are also directors, meets twice a month. All executive officers perform their duties under the direction and supervision of the

representative directors. This system accelerates decision making, clarifies responsibility in the execution of duties and raises management transparency

and efficiency.

The corporate auditors attend meetings of the Board of Directors and Board of Executive Officers to stay abreast of business challenges. Furthermore, in

order to develop a deeper understanding of the actual status of operations, they also attend other important Company-wide meetings, including sales

meetings and budget meetings. Moreover, corporate auditors conduct proper audits designed to prevent violations of laws and regulations and the Articles

of Incorporation.

The Company has established the Internal Auditing Office, which carries out planned audits of the Company. The Company's corporate auditors conduct

hearings on the audit plans of the Accounting Auditor at the beginning of the fiscal year and receive reports on audit results at the end of the fiscal year.

Corporate auditors are also present when the Accounting Auditor conducts audits to confirm the audit methodology. Moreover, corporate auditors

cooperate with the Internal Auditing Office and receive regular reports on the audit results.

The certified public accountants that performed the accounting audit of the Company were Toshiyuki Ono, Kenji Morita, and Tomoya Noda, who all belong

to Deloitte Touche Tohmatsu LLC. In addition, five other certified public accountants and five other people assisted with accounting audit work of the

Company.

Reasons for Selecting the Current Corporate Governance Framework

The Company's Board of Directors has seven members. In order to inspect the decision making of the Board of Directors from an objective and neutral

viewpoint, four corporate auditors, including two independent corporate auditors, conduct audits.

For the purpose of enriching the corporate governance system by incorporating an external, independent perspective in the management decision-making

process, the Company appointed an outside director who is also an independent director at the general meeting of shareholders held on June 27, 2014.

Accordingly, the Company has adopted a system under which the Board of Directors (seven directors) including one outside director and the Board of

Corporate Auditors (four corporate auditors) including two independent corporate auditors supervise and audit execution of business.

Outside Director and Independent Corporate Auditors

The outside director attends meetings of the Board of Directors and the independent corporate auditors attend meetings of the Board of Corporate

Auditors, meetings of the Board of Directors, and meetings of the Board of Executive Officers. At these meetings, the outside director and the independent

corporate auditors state their opinions from a neutral and objective viewpoint based on the expertise they have cultivated in the course of their careers. The

Company considers that, through the reflection of the opinions of the outside director and the independent corporate auditors, management is informed by

independent external perspectives, thus ensuring objectivity and neutrality of decision making by the Board of Directors.


Attendance of Meetings of the Board of Directors and the Board of Corporate Auditors

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Corporate Auditor Makoto Satani Attended 13 out of 15 meetings of the Board of Directors and all 14 meetings of theBoard of Corporate Auditors in the fiscal year ended March 31, 2014, supervisedmanagement and provided appropriate advice.

Corporate Auditor Setsuko Kusumoto Attended 13 out of 15 meetings of the Board of Directors and all 14 meetings of theBoard of Corporate Auditors in the fiscal year ended March 31, 2014, supervisedmanagement and provided appropriate advice.

Matters Concerning Internal Control Systems

Basic Policy for and Status of the Internal Control System

The Company is putting in place the necessary mechanism (internal control system) to ensure that work is done appropriately, based on the Companies

Act and in compliance with laws and regulations. The Company's basic policies are set out below.

1. System ensuring that the directors and other officers' performance of their duties comply with laws and regulations

1. Considering that fulfilling corporate social responsibility (CSR) is a core management principle, the Company has developed the Compliance Manual

and the Code of Conduct. The Code of Conduct stipulates guidelines that the directors, executive officers, council members, and employees should

follow. The directors take the lead in complying with the Code of Conduct, and make sure that a workable internal system is in place to keep

concerned parties within and outside of the Company informed about the Code of Conduct.

2. The Company has established the Compliance Committee as an organ to ensure that the directors and executive officers and council members

comply with laws and regulations and perform their duties appropriately.

3. The Board of Directors is seeking to maintain an environment where the corporate auditors can carry out effective audits.

2. System ensuring that the employees' performance of their duties comply with laws and regulations

1. The Company has prepared the Compliance Manual, a handbook consisting of the Code of Conduct and other compliance regulations, so that the

employees of the Group will comply with laws and regulations and will perform corporate activities and day-to-day operations in compliance with the

Company's corporate ethical guidelines.

2. To promote corporate compliance and ethical behavior, the Company has established the Compliance Committee, chaired by the President, and

appointed a Chief Compliance Officer (CCO). The Legal Affairs Department serves as the secretariat of the Compliance Committee. The Company

and each Group company have appointed CSR Leaders across the buisness who promotes compliance.

3. To promote compliance, the Company formulates a Group compliance program each year to run education and training programs, and maintains

whistle-blowing and consulting systems to identify compliance risks. By the end of each fiscal year, a general review of compliance is carried out, and

the results are reported to the Compliance Committee.

3. System for storage and management of information on the directors' performance of their duties

1. Documents and other information relating to the performance of duties of the directors of the Company are stored and managed properly under

internal regulations including the document management rules.

2. Critical documents of the Company are managed and stored and are available for inspection in accordance with their levels of importance and

confidentiality.


4. Regulations and system relating to management of risks of loss

1. The Legal Affairs Department is responsible for managing significant risks that may affect the management of the Company or may have

Company-wide effects. The Legal Affairs Department conducts Company-wide compliance risk investigations each fiscal year; compiles the results of

identification, analysis, and assessment of compliance risks performed at all workplaces and actions taken; and reports to the Compliance Committee

chaired by the President.

2. Each division manages risks relating to its operations appropriately in accordance with relevant internal regulations.

3. The General Affairs Department has established a basic policy for business continuity planning to deal with emergencies, such as a major disaster or

disruption. The Company has formulated a Business Continuity Plan (BCP) in accordance with this basic policy and has established a crisis

management system. The General Affairs Department periodically reviews the BCP system and reports at the Disaster Risk Management Meeting,

which all executive officers attend.

4. The Company has established the Personal Information Management Regulations to protect personal information.

5. System ensuring that the directors and other officers perform their duties efficiently

1. There is a system where the directors perform their duties properly and efficiently in accordance with their authority and the decision-making rules

stipulated in the regulations of the Board of Directors and the rules for submitting proposals to the Board of Directors.

2. The directors pass resolutions about matters stipulated in laws and regulations, the Articles of Incorporation, and other important management issues

at ordinary Board of Directors meetings, which are held once a month, or extraordinary Board of Directors meetings, which are held as needed.

3. The executive officers pass resolutions on necessary issues and deliberate on issues to be submitted to the Board of Directors in advance at

meetings of the Board of Executive Officers, which are, in principle, held twice a month, based on the regulations of the Board of Executive Officers.

The executive officers thereby ensure prompt and efficient decision making by the Board of Directors.

4. The Board of Directors determines the rank and responsibilities of each director and executive officer and discloses them immediately after they are

determined.

6. System ensuring appropriate operations at the Company and the Group, consisting of the parent company and subsidiaries

1. To ensure the healthy and efficient management of the Group, the Company has established the Group Management Basic Policy and develops

Group management strategies and systems based on the policy.

2. The Company has established sections at head office that are responsible for the operations of its subsidiaries in Japan and overseas. Those

sections manage the subsidiaries appropriately based on the situation of the subsidiaries under the affiliate management regulations.

3. The Company has each Group company seek to comply with laws, regulations, and norms through compliance activities under the Code of Conduct

in developing and operating an internal control system.

4. The internal auditing department assesses the status of risk management and compliance activities at each Group company through internal audits

and gives advice and makes suggestions for improvement as needed.

7. Corporate auditors' requests to have employees who will support their performance of duties

1. The directors maintain a system to respect the corporate auditors' requests to have employees who will support the performance of their duties.

8. Independence of the employees mentioned in the preceding item from the directors

1. If the corporate auditors have employees who will support the performance of their duties, the directors maintain a system to respect the opinion of

the corporate auditors about the independence of the employees from the directors.


9. System for the directors and employees to report to the corporate auditors and systems relating to other reports to the corporate auditors

1. The Board of Directors ensures that the corporate auditors perform their duties stipulated in the regulations of the Board of Corporate Auditors.

2. Corporate auditors exercise the authority granted them under laws and regulations and communicate with the directors, executive officers, council

members, and employees to carry out fair audits and ensure the legality and efficiency of their duties.

3. Corporate auditors carry out fair audits to prevent violations of laws and regulations and the Articles of Incorporation, seeking to assess business

challenges and actual business conditions through the following activities:

Attendance at meetings of the Board of Directors and the Board of Executive Officers

Attendance at important Company-wide meetings, including sales meetings and budget meetings

Attendance at compliance meetings and disaster risk management meetings

Holding regular meetings for exchanging opinions with the representative directors, including the President

Perusing important documents relating to the execution of business, including the minutes of Board of Directors meetings and circulars sent toobtain approval for decisions on proposals made at meetings of the Board of Directors and the Board of Corporate Auditors

10. Another system for ensuring efficient audits by the corporate auditors

1. The corporate auditors maintain a system for enhancing the effectiveness and efficiency of audits in which they cooperate and exchange opinions

with the Accounting Auditor and the Internal Audit Chamber.

11. System for ensuring compliance with the Financial Instruments and Exchange Act

1. The Company has built an internal control system necessary for preparing adequate financial statements under the Financial Instruments and

Exchange Act and assesses the effectiveness of the development and operation of the system.


Hiromitsu Kuramoto

President andRepresentative Director

Hiroyuki Yasukawa

Representative Director,Senior Managing Executive Officer

Shoji Murakami

Representative Director,Senior Managing Executive Officer

Kenichi Kotoku

Director,Managing Executive Officer

Akio Futami

Director,Managing Executive Officer

Kunihiko Miyoshi

Director,Executive Officer

Hiroshi Toda

Outside Director (Part-time)

Board of Directors


Masaaki Hashimoto

Auditor (Full-time)

Hitoshi Sakurada

Auditor (Full-time)

Makoto Satani

Auditor (Part-time),Independent Auditor

Setsuko Kusumoto

Auditor (Part-time),Independent Auditor

Toshiyuki Kimura

Executive Officer

Tatsuhiko Saeki

Executive Officer

Eiichi Suzuki

Executive Officer

Hidetoshi Nakanishi

Executive Officer

Minoru Futonaka

Executive Officer

Toru Kamiyama

Executive Officer

Auditors

Executive Officers


Yasuhiko Ueda

Executive Officer

Masayuki Yokoyama

Executive Officer

Takeshi Hagiwara

Executive Officer

Toshio Kawashima

Executive Officer

Makoto Suzuki

Executive Officer

Ian Veitch

Executive Officer

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President and Representative Director Hiromitsu Kuramoto

Representative Director Hiroyuki Yasukawa Japan Region(East Japan Export Sales Div.,East Japan Import Sales Div., Central Japan Sales Div.,West Japan Sales Div., Contract Logistics Sales Dept.)Corporate Officer of Nippon Yusen Kabushiki Kaisha

Shoji Murakami Business Development & Planning Dept.,Global Ocean Freight Business Dept.,Global Air Freight Business Dept.,Contract Logistics & Transport Dept.

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Akio Futami Corporate Planning Dept., Accounting Dept.,Corporate Communication Dept.

Kunihiko Miyoshi

Outside Director(Part Time) Hiroshi Toda Independent Director


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Auditor (Part-time) Independent Auditor Makoto SataniSetsuko Kusumoto

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Senior Managing Executive Officer Hiroyuki Yasukawa East Japan Export Sales Div., East Japan Import Sales Div.,In charge of Central Japan Sales Div., West Japan Sales Div.,Contract Logistics Sales Dept.

Shoji Murakami Business Development & Planning Dept., Global OceanFreight Business Dept., Global Air Freight Business Dept.,Contract Logistics & Transport Dept.

Managing Executive Officer Kenichi Kotoku Internal Audit Chamber, Human Resources Dept.,Legal Affairs Dept., Operation Administration Dept.,Information Business System Dept.In charge of General Affairs Dept.,Customs Clearance Control Chamber

Akio Futami Corporate Planning Dept.In charge of Accounting Dept.,Corporate Communication Dept.

,noigeR saciremA fo egrahc nIihsoyiM okihinuKreciffO evitucexEPresident of Yusen Logistics (Americas) Inc.

Toshiyuki Kimura In charge of South Asia & Oceania Region,Chairman of Yusen Logistics (Singapore) Pte. Ltd.

Tatsuhiko Saeki In charge of Contract Logistics & Transport Dept.(GeneralManager)

Eiichi Suzuki In charge of Internal Audit Chamber, Legal Affairs Dept.,Chief Compliance Officer

Hidetoshi Nakanishi In charge of Global Air Freight Business Dept.(General Manager)

Minoru Futonaka In charge of Global Ocean Freight Business Dept.

Toru Kamiyama In charge of East Asia Region,Chairman of Yusen Logistics (China) Co., Ltd.

Yasuhiko Ueda In charge of Human Resources Dept.(General Manager)

Masayuki Yokoyama In charge of Corporate Planning Dept.(General Manager)

Takeshi Hagiwara In charge of East Japan Export Sales Div.(General Manager)In charge of East Japan Import Sales Div.

Toshio Kawashima In charge of Business Development & Planning Dept.(GeneralManager)

Makoto Suzuki In charge of Information Business System Dept.,Operation Administration Dept.

Ian Veitch In charge of Europe Region,Managing Director of Yusen Logistics (Europe) B.V.