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Japan’s top lines to merge container businesses

07/11/2016

Joint venture between NYK, MOL, and ‘K’ Line will create world’s sixth-largest box ship operator with 110 ships and around 7% of global capacity

Japan’s three major shipping conglomerates have agreed to integrate their container shipping businesses next year and start joint services in 2018, effectively creating the world’s sixth-largest box ship operator with 110 ships and an estimated 7% of global capacity.

The move by Nippon Yusen Kabushiki Kaisha (NYK), Mitsui OSK Lines (MOL), and Kawasaki Kisen Kaisha (K’ Line) follows months of industry rumours that a merger was under discussion, and removes the possibility of overseas interests purchasing any of the lines’ container assets.

The three Japanese carriers said that, subject to regulatory approval, the new joint venture would be established by 1 July 2017 and integrate the companies’ container shipping and global terminal operations businesses, but exclude terminal operations in Japan. NYK will have a 38% stake in the new business, with MOL and K Line taking 31% each.

Joint services are planned to commence from 1 April 2018, and some JPY300 billion (US$2.9 billion) will be contributed by the parent firms to the new JV in cash, vessels, and terminals. 

The merger of the Japanese lines’ operations will create the world’s sixth largest box ship operator with a combined fleet 110 ships of 1.4m TEU capacity. It will also see the number of global carriers fall from 20 six years ago to just 13.

The Japan consolidation, part of the liner sector’s desperate bid to improve bottom line performance in the face of excess capacity, sustained dire freight rates, and weak demand growth, was branded ‘survival M&A’ by container shipping analyst Drewry earlier this year.

Rahul Kapoor, the Singapore-based director of Drewry Financial Research Services, told Lloyd’s Loading List the deal was positive both for the individual lines and the industry as a whole.

He added that securing regulatory approvals was unlikely to be problematic. “They are already working towards getting approvals for THE Alliance so I do not see any regulatory hurdles,” he added.

In a joint statement, the carriers said the decision to merge container operations was taken against the backdrop of a decline in the container growth rate and the rapid influx of newly built vessels.

“These two factors have contributed to an imbalance of supply and demand which has destabilized the industry and has created an environment that is adverse to container line profitability,” said the lines. “In order to combat these factors, industry participants have sought to gain scale merit through mergers and acquisitions and consequently the structure of the industry is changing through consolidation.”

The consolidation of the Japanese lines’ operations would, said the statement, put them on “an equal footing to ensure future stable, efficient and competitive business operations”, helping deliver financial performance stabilisation through more competitive services. 

Reacting to the major realignment of the liner industry over the last year, which has seen a raft of new alliances formed, CMA CGM purchase APL and UASC merge with Hapag Lloyd, Drewry said that consolidation pre-2008 had been driven by a desire for growth. By contrast, more recent M&A activity was “all about survival” in the face of factors such as balance sheet restructuring, poor investor returns and adaptation to a low growth environment. 

Drewry added: “At the time of these acquisitions pre-2008, growth or scale was the primary objective to undertake M&A. The industry was still in growth phase, globalisation was still evolving and manufacturers shifting sourcing to Asia.

“However, recent acquisitions have been driven by the potential for synergies from cost saving, economies of scale, competitive position and protection against weak industry fundamentals.”

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