Top Japanese Shipping Lines to Merge Container Businesses
Japan’s three biggest shippers agreed to combine their container operations to create the world’s sixth-largest box carrier, as the industry steps up consolidation this year amid a global turmoil in the sea-cargo business.
Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., which are predicting operating losses this year, will create a company that will control 7% of the world container-shipping trade, according to a joint statement in Tokyo on Oct. 31. The combination will need to obtain approval by regulators in the European Union, United States, China and Japan, among others.
The global container industry has been in turmoil since the 2008 financial crisis brought trading to its knees. South Korea’s biggest line, Hanjin Shipping Co., filed for bankruptcy protection in August while others, such as A.P. Moeller-Maersk A/S, the world’s biggest, have restructured to cut costs even as rates to move shoes and televisions stay depressed.
“It feels more of a merger for survival,” said Mikey Hsia, a trader at Sunrise Brokers in Hong Kong. “I see it as a reaction to Hanjin Shipping. The impact is that there won’t be any domestic competition. Now, the companies have to compete from a global perspective.”
The combined entity will be formed by July 1, will have about 2 trillion yen ($19 billion) in sales and will be Asia’s biggest box carrier after China Cosco Shipping Corp. It expects to start operations by April 2018 and will have 256 vessels, according to the statement. Nippon Yusen will own 38% of the merged entity, and Kawasaki Kisen and Mitsui OSK will each hold 31%, according to the statement.
“With joint shipping and alliances, the scale of our operations and business styles, we have many things in common,” the shipping lines said in a joint statement. “We thought it would be easier to utilize each other's strengths this way.”
Nippon Yusen, Mitsui OSK and Kawasaki Kisen will invest a total 300 billion yen in the venture, which is expected to result in a "synergy" of 110 billion yen annually.
The companies started talks on the merger of the container lines last spring and will start discussions with major shareholders, Eizo Murakami, president of Kawasaki Kisen, told reporters in Tokyo on Oct 31.
There won’t be any change to the bulk-cargo moving business of the three shipping companies. Nippon Yusen got 30.5% of its revenue last year from the liner business. That proportion was 49.4% for Kawasaki Kisen and 42% for Mitsui OSK, according to data compiled by Bloomberg. News.
"The way the industry is going, combining their operations is a good thing," said Rahul Kapoor, a director at Drewry Financial Research Services Ltd. in Singapore. "China has combined its two shipping lines. The Japanese need to combine to survive in this environment.”
All three Japanese companies on Oct. 31 forecast operating losses for this fiscal year. Nippon Yusen expects a loss of 25.5 billion yen, Kawasaki Kisen 44 billion yen and Mitsui OSK 15 billion yen.
Helped by cheap loans, container lines worldwide have hung on even as freight rates to move goods have remained depressed. While Maersk has embarked on a restructuring program, companies such as Hapag-Lloyd AG and France’s CMA CGM SA have bought out smaller rivals to consolidate the industry.
The spot price to move an industry-standard 20-foot container to Europe from Asia was $958 at the end of the week of Oct. 24, down 22% from $1,232 at the start of this year, according to Shanghai Shipping Exchange.
South Korea’s government said Oct. 31 that it plans to spend 11 trillion won ($9.6 billion) by 2020 to help the local shipping and shipbuilding industries tide over the slump.
