MOL’s Caledon shipping vessel operated by Mitsui OSK Lines sits moored at the dock of DP World’s London Gateway deep-sea container terminal.
On Monday, October 31st, 2016, Japan’s three largest shipping companies, Kawasaki Kisen Kaisha, Ltd. (“K” – Line), Mitsui O.S.K. Lines, Ltd. (MOL), and Nippon Yusen Kabushiki Kaisha (NYK), all members of THE (Transportation High Efficiency) Alliance – which begins operations on April 1st, 2017, agreed to merge a major portion of their businesses in order to survive the economic fallout of weakened global trade. The joint venture company plans to be established by July 1st, 2017, with their starting date for new operations planned for April 1st, 2018. This major Japanese merger announcement was made the same day that the three carriers recorded a collective ½ year operating loss of $484 million, bringing to light just how badly the container lines are suffering right now. By merging their container businesses together, they would generate scale and operational efficiency benefits that would allow the lines to save $1 billion per year.
Ever since the bankruptcy of South Korea’s biggest container line, Hanjin Shipping back in August, a huge wave of consolidation has been sweeping through the liner industry to minimize supply to be in line with demand in attempts to bring shipping back to profitable levels again. With container growth rate declining, too many newer and bigger vessels being built, super low oil prices, sluggish cargo demand, and an oversupply of trade capacity, most, if not all container shipping companies are now working at a loss every time they set sail in a super soft global market with depressed container rates. With the individual groups facing bleak prospects forging forward on their own, president of Nippon Yusen, Mr. Tadaaki Naito stated at the news conference, “If we don’t want the number of Japanese shipping companies to be zero, we need to create one strong, splendid company.”
Through this three way partial joint venture now combining into a single, yet-to-be named company, estimates of business worth hovers around 300 billion yen, or $2.9 billion, according to their news release; and becoming one of the largest Asia’s biggest box carrier movers. The new company plans to operate 256 ships, totaling about 7% of the global market by container volume, with Kawasaki Kisen and Mitsui O.S.K. owning 31% of new company each, and Nippon Yusen owning 38%; with expectations to save about 110 billion yen per year and becoming the world’s 6th largest container line. Nonetheless, transport cargo like grain and iron ore will remain individual entities.
With a ship building hay day happening right before this sluggish crisis, the problem has now deeply worsened with an excess of 2 million TEUs. With trade slowing down to a trickle, and shipping companies having far more capacity than they can profitably use, major container lines haven’t covered their operating costs in the last 5 – 6 years. Because of this, shipping lines have explored consolidation and alliances as a result, with many acquisitions and several mergers taking place worldwide. With what seems to be the only viable option of merging, Eizo Murakami, president of Kawasaki Kisen states, “This is a big decision, since it will create what will be the only container shipping company in Japan. But with the European industry consolidating and the business becoming more of an oligopoly, we need the scale that being a single company (in Japan) would provide.”