AIT CORPORATION

The Company Group does not own vessels, vehicles or other transport assets and outsources transportation to actual carriers, and therefore bears the risk that purchase costs may fluctuate due to changes in fuel prices or shortages of vessel space and vehicles. If the Company is unable to pass on rising purchase costs to selling prices, or if selling prices are reduced in response to a sharp decline in purchase costs, this may adversely affect business performance. As countermeasures, the Company is entering into fixed-freight-rate contracts with some actual carriers and pursuing initiatives to strengthen its revenue base, such as expanding its service menu through DX.

The international freight transportation business is affected by domestic and overseas economic trends, and the Company Group's net sales are relatively highly dependent on companies related to textiles and general merchandise. If an economic downturn occurs in this industry, business performance may be affected. Although the Company is diversifying its client base by strengthening sales activities toward other industries, the risk of concentration in specific industries remains.

The Company Group's principal business is ocean container transportation between Japan and China, and if the international logistics environment between Japan and China changes significantly due to political or economic turmoil in China, changes in government policy, movements in the yuan exchange rate, the occurrence of anti-Japanese movements, or other factors, this may have a material impact on business performance. The Company has two consolidated subsidiaries in China, gathers information from its major coastal bases, and has established a system for reporting and reviewing the business environment and management status of its Chinese subsidiaries at monthly Board of Directors meetings.

In addition to China, the Company Group has consolidated subsidiaries in Taiwan, Vietnam, and Myanmar, and is exposed to a variety of country risks, including changes in licensing, taxation, and trade restrictions, social unrest caused by war, terrorism, strikes, and other events, international tax risks such as transfer pricing taxation, and sharp exchange rate fluctuations. If these risks materialize, or if unforeseen country risks arise, business performance may be affected. When entering new overseas markets, the Company strives to identify and address risks by taking into account the local political and economic situation and potential cargo volumes.

Because a portion of freight revenue and freight costs is denominated in US dollars, fluctuations in exchange rates may affect business performance. In addition, translation differences arising from converting the local-currency-denominated operating revenue, expenses, and assets of overseas consolidated subsidiaries into yen also affect the financial position. The Company hedges foreign-currency-denominated receivables and payables through forward exchange contracts, but this does not eliminate all risk.

The Company Group conducts its business after obtaining registration and permits for Type I and Type II freight forwarding businesses under the Act on Consignment Freight Forwarding Business, a customs brokerage license under the Customs Business Act, and an NVOCC business license in China, among others. If fraudulent acts or violations of laws and regulations occur, these registrations and licenses may be revoked, which could have a material impact on the continuation of business. The Company strives to prevent the occurrence of grounds for license revocation by gathering information on relevant laws and regulations, assigning qualified personnel, and conducting regular compliance training.

As the Company strengthens sales activities for integrated transportation, the outsourcing of customs clearance operations has increased, leading to an increase in trade receivables, and advance payments such as import duties are also on an increasing trend. The Company hedges risk through thorough credit management and the use of factoring, but if credit risk materializes and cannot be offset through factoring or other means, bad debt losses may occur and affect business performance.

In the international freight transportation business, securing and developing personnel well-versed in domestic and overseas logistics operations is essential; however, the chronic labor shortage caused by Japan's declining birthrate and aging population, together with intensifying competition for recruitment, continues to make it difficult to secure appropriate personnel. If the Company is unable to secure personnel well-versed in logistics operations or is unable to carry out training and development as planned, this may affect business activities. The Company is responding through continued new graduate and mid-career recruitment, use of recruitment agencies, and enhancement of its education and training programs.

In the logistics industry, amid rising logistics costs due to labor shortages and diversifying and increasingly sophisticated customer needs, price competition is intensifying due to an increase in new market entrants, among other factors. If the Company is unable to secure unique competitive advantages (such as shortened transport times, combined sea-and-rail services, and digitally enabled services), this may affect business performance. The Company continuously works to develop differentiated services and strengthen price competitiveness.

As the Company's principal business is international freight transportation centered on Japan and China, if a natural disaster such as a major earthquake or typhoon, or the outbreak and spread of a new infectious disease, causes actual carriers' transport functions to be suspended or leads to prolonged stagnation in production activities and logistics in various countries, this may reduce net sales and affect business performance. In particular, there are concerns about indirect effects through deteriorating performance of textile- and general-merchandise-related companies, on which the Company is relatively highly dependent for sales. The Company has taken measures such as developing disaster response manuals, introducing safety confirmation systems, conducting disaster drills, and establishing emergency response headquarters, but damage cannot be completely eliminated.