Japan’s three biggest shippers agreed to spin off their container operations and merge them to create the world’s sixth-largest box carrier as the global container-shipping industry continues to shrink.
Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. agreed to merge the box businesses into a company that will control 7 percent of the world’s container-shipping trade, according to a joint statement in Tokyo on Monday. The combined entity will be formed by July 1, have about ¥2 trillion in sales and will be Asia’s biggest box carrier after China Cosco Shipping Corp.
The global container industry has been in turmoil since the 2008 financial crisis brought trading to its knees. South Korea’s biggest container-shipping line, Hanjin Shipping Co., filed for bankruptcy protection in August while other container lines like 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 LLP 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.”
“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 others’ strengths this way.”
The combined company, which expects to start operations by April 2018, will have 256 vessels, according to the statement. Nippon Yusen will own 38 percent of the merged entity while Kawasaki Kisen and Mitsui OSK will each hold 31 percent, according to the statement.
Speaking at a joint news conference in Tokyo, Kawasaki Kisen President Eizo Murakami described the integration as “an extremely big decision.”
The companies started talks on the merger of the container lines in spring and hasn’t yet discussed with major shareholders, Murakami said.
“We aim to bring a change to global trade and Japan’s industry structure by combining out all-Japan efforts,” Mitsui O.S.K. President Junichiro Ikeda said. “It’s a historic turning point.”
There won’t be any change to the bulk cargo-moving business of the three shipping companies. Nippon Yusen got 30.5 percent of its revenue last year from the liner business. That number was 49.4 percent for Kawasaki Kisen and 42 percent for Mitsui OSK, according to data compiled by Bloomberg.
“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 companies forecast operating losses for this fiscal year. Nippon Yusen expects a loss of ¥25.5 billion, Kawasaki Kisen ¥44 billion and Mitsui OSK ¥15 billion.
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 like Hapag-Lloyd AG and France’s CMA CGM SA have bought out smaller rivals to consolidate the industry.