Kawasaki Kisen Kaisha, Ltd.

In global business operations, inadequate response to human rights issues affecting stakeholders, including the supply chain, may lead to a decline in social credibility and brand image, which could adversely affect business activities, financial condition, and operating results. In addition, a shortage of necessary human resources could seriously affect competitiveness within the industry and business continuity. As countermeasures, the Group is implementing human rights due diligence based on the "Kawasaki Kisen Group Human Rights Basic Policy," formulating supplier sustainability guidelines, and strengthening its organizational structure through the newly established Sustainability Management Promotion Meeting.

In global business operations, if officers and employees violate laws, regulations, or corporate ethics, it may lead to a decline in social credibility and brand image, and the associated response costs could adversely affect business activities, financial condition, and operating results. The Group has established individual policies on competition law, anti-bribery, economic sanctions, and personal information protection, and is working to foster a compliance culture through quarterly Compliance Committee meetings and e-learning training programs.

In the event of unforeseen accidents causing damage to the hull, cargo, or crew, particularly serious accidents leading to environmental pollution such as oil spills, this could have a material impact on financial condition and operating results, as well as a significant impact on broad business activities due to a decline in social credibility and brand image. Piracy, terrorism, and cyber risk are also recognized as factors threatening safe operation. The Group addresses these risks through regular meetings of the Safe Operation Promotion Committee chaired by the Representative Executive Officer, President, the development of accident response manuals and drills, and appropriate insurance coverage.

Given the large proportion of revenue denominated in US dollars, a sharp appreciation of the yen poses a risk of significantly reducing yen-denominated earnings, while rising interest rates increase funding costs and make it more difficult to execute investment plans. Fuel costs account for a large portion of operating costs, so fluctuations in crude oil prices directly affect profit margins. As countermeasures, the Group implements foreign exchange forward contracts, dollarization of costs, fixed-rate borrowings and interest rate fixing swaps, and hedging through fuel oil futures transactions.

Deterioration in the shipping market or changes in public regulations and trade policies in various countries and regions may prevent vessel investment plans from proceeding as scheduled, creating a risk of losses if anticipated demand is not achieved after newbuilding completion, or if existing vessels must be sold or charter contracts terminated midway. There is also a risk of impairment losses arising from deteriorating market conditions and declining profitability of held assets. The Group addresses these risks through careful formulation of investment plans based on market research and demand forecasts, a policy of keeping the maximum expected loss amount within the range of consolidated equity capital, and regular valuation of asset value.

Increasing uncertainty in the international order, including US-China relations, may cause structural changes in transport demand due to shifts in supply chains, moves toward local production for local consumption, and changes in trade patterns, potentially affecting the Group's revenue base. If entry into Chinese docks or shipbuilding in China is obstructed, this would have a major impact on vessel operations, business activities, and operating results. Geopolitical risk, previously managed as an emerging risk, has been integrated into economic activity fluctuation risk, and the Group is strengthening company-wide strategic responses through the newly established Geoeconomics Meeting.

In the event of unauthorized access, information leakage, or system outages caused by virus infection resulting from increasingly diverse and sophisticated cyberattacks, this could have a material impact on business activities, financial condition, and operating results. Cyber risk to vessels is also increasing with the expansion of ship-to-shore internet connectivity. The Group is addressing this through strengthened security for endpoints and communication networks, enhanced multi-factor authentication and account management, acquisition of CSMS certification at ship management companies, and security education and awareness activities.

As the Group promotes digitalization and AI utilization under its DX strategy, insufficient response to technological advancement could lead to decreased operational and vessel operation efficiency and delayed decision-making, resulting in increased costs and lost revenue opportunities, which could affect competitiveness and mid- to long-term performance. Through the newly established Digital Meeting, the Group is building a system to accelerate monitoring of external environmental changes and the formulation and promotion of digital strategy from a company-wide perspective.

In the event of natural disasters such as a major earthquake directly beneath the Tokyo metropolitan area, or a pandemic, there are concerns about severe impacts on buildings, transportation, and lifelines, as well as serious effects on the health of many people, which could affect business activities, financial condition, and operating results. The Group enhances effectiveness through the formulation of Business Continuity Management (BCM), the creation of a pandemic action guide based on its COVID-19 response, and regular drills.

Intensifying weather and sea conditions due to climate change may hinder safe vessel operation, potentially increasing operating costs due to route changes and increasing the risk of damage to cargo and vessels. Strengthened public regulations aimed at decarbonization may lead to increased costs, and structural changes in demand for transporting fossil energy resources could seriously affect the revenue base. "

Technological innovations such as 3D printers, AR/VR technology, and automation may lower entry barriers in the shipping industry, potentially intensifying price competition due to new competitors entering the market and causing existing equipment and know-how to become obsolete. There is also recognized risk of structural changes in the business environment for container transport and finished vehicle transport due to the progress of local production for local consumption. The Group addresses this through the establishment of a risk intelligence cycle for continuous monitoring, cultivation of talent capable of responding to new technologies, and consideration of strategic alliances.