Slowing global trade and increased fleet sizes have caused freight rates to drop
TOKYO—Three major Japanese container shipping lines said October 31 they plan to merge their shipping and overseas terminal operations as the industry struggles with overcapacity and mounting losses.
Mitsui O.S.K. Lines, Nippon Yusen K.K. and Kawasaki Kisen Kaisha, or K Line, said in a statement that they are forming a joint venture to unite their shipping operations. They also are merging terminal management businesses outside Japan.
Slowing global trade combined with increased fleet sizes have caused freight rates to tank, prompting a wave a consolidation in the container industry.
The three carriers said they hoped to attain a more competitive scale through their joint venture. It will rank sixth worldwide, with a combined fleet capacity of 1.4 million TEUs, or Twenty-foot Equivalent Units, and a 7 percent global market share, they said.
Container shippers have been booking heavy losses as freight rates have sunk. The three Japanese shippers, which belong to The Alliance, of Hapag-Lloyd and the Yang Ming Line, expect to save 110 billion yen ($1.1 billion) in costs by merging.
“Due to low oil prices, sluggish cargo demand and over-supply of trade capacity, container freight rates are at historic lows,” the statement said, adding that there were limits to how much the three companies could manage to save on their own.
Nippon Yusen, or NYK, will contribute 38 per cent of the equity in the approximately 300 billion yen ($2.9 billion) joint venture, with Mitsui O.S.K. and K Line each providing 31 per cent.
The companies’ terminal operations in Japan and other businesses, such as bulk shipping, ferries and logistics will not be merged.
The deal is subject to approval by regulators.
Last month, South Korea’s top ocean shipping company, Hanjin Shipping Co., launched bankruptcy proceedings following years of losses. The company’s woes rippled through the global trading system as creditors seized ships and ports refused to handle Hanjin-hauled cargo.
“The quest for scale and expectations that weak demand and excess capacity will continue for at least another two years are driving the wave of consolidation that has swamped the liner shipping industry this year,” Greg Knowler, Maritime & Trade expert, IHS Markit, said in a commentary.
He said the next moves of consolidation may come among Taiwan’s major shippers, Evergreen Marine Corp, Yang Ming Line and Wan Hai Lines.