NEWS FLASH: Japan’s ‘Big 3’ to merge in July

Japan’s three largest ocean carriers said Monday in Tokyo they will merge their container operations in mid-2017 to form what would be the sixth largest line, continuing a recent trend of industry consolidation.    Japan’s three major ocean carriers – MOL, NYK Line and “K” Line – have agreed to spin off their container divisions and merge them July 1, according to a joint statement released Monday morning in Japan.
   The carriers have long been mooted as partners in a liner shipping environment where excess capacity and slow demand for containerized goods has hurt the bottom lines of nearly every carrier.
   The merger is the latest in a string of blockbuster moves to have occurred over the past two years, including acquisitions and major shifts in alliances, and punctuated by South Korean line Hanjin Shipping declaring bankruptcy in late August.
   The carriers estimate the joint entity would create the sixth largest carrier in the world, with a collective 1.4 million TEUs of capacity. The move follows a similar move in early 2016 by China’s major carriers, COSCO Container Lines and China Shipping, to merge their container operations. It also continues the trend of consolidation among beleaguered lines.
   In regards to the merger, Lars Jensen, chief executive officer of SeaIntelligence Consulting, told American Shipper, “Given that the combined size of the Japanese carrier is much smaller than the biggest carriers, I cannot see how the regulators could have a problem with it.”
   In recent months, CMA CGM has acquired APL, while Hapag-Lloyd has acquired UASC (after having earlier acquired CSAV), and COSCO and China Shipping have merged.
   There have also been wholesale changes to the alliance structure of the market, with the three Japanese lines having been squeezed out of the existing G6 and CKYH alliances by their partners moving to different alliances in the first half of 2017.
   All three Japanese carriers are due to become part of the THE Alliance next year, which will also include Yang Ming of Taiwan and Germany’s Hapag-Lloyd.
   Jensen said that from an alliance perspective, the merger of MOL, NYK and “K” Line does not change the global game, but internally, it will change the dynamics of THE Alliance as the three Japanese carriers combined will be almost the same size as Hapag-Lloyd.
   “I have previously pointed out that we had a range of carriers of ‘mid size’ that on one hand was global, but not big enough to compete on true scale – yet too big to be niche players,” Jensen added. “This is a move by the Japanese to get the required scale. It increases pressure on the remaining mid-sized global carriers: Hamburg Sud, OOCL, Yangming and Hyundai though.”
   The goal of the merger is to create scale and operational efficiency by leveraging the three companies’ best attributes, they said in a statement.
   “The container shipping industry has struggled in recent years due to a decline in the container growth rate and the rapid influx of newly built vessels,” the lines said in a statement. “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.
   “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. Under these circumstances, three companies have now decided to integrate their respective container shipping on an equal footing to ensure future stable, efficient and competitive business operations.”
   The joint venture, which includes container terminals operated by the three lines outside of Japan, is due to be complete by July 1, 2017, with service planned for April 1, 2018.
   NYK will take a 38 percent share of the merged company, with MOL and “K” Line each taking a 31 percent share.
   Each carrier operates business lines outside of the liner business that will be untouched by the merger.