Japan’s ‘Big 3’ ocean carriers 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.
   However, while mergers and alliances can help carriers coordinate, they do not address the underlying problem of overcapacity and commoditization, Freightos CEO and Founder Dr. Zvi Schreiber said.
   According to data from ocean carrier schedule and capacity database BlueWater Reporting, the combined companies would sport a total operating fleet capacity of 1.46 million TEUs, making it the sixth largest carrier in the world behind Maersk Line, Mediterranean Shipping Co. (MSC), and the newly merged CMA CGM and APL, COSCO and CSCL, and Hapag-Lloyd and UASC. Carrier operating fleet size drops off significantly from there with seventh-largest Evergreen Line operating just under 1 million TEUs, less than one third of Maersk’s 3.15 million TEUs. It should be noted that intra-regional subsidiary lines – such as Maersk Line’s Safmarine, MCC and Seago – are included in parent totals.
   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.
   Don Pisano, chairman of the National Industrial Transportation League’s (NIT League) ocean transportation committee, said, “It appears that the carriers have created a situation for themselves in which consolidation and participation in Vessel Sharing Agreements may be an actual requirement in order to survive in the Asia to North America and Asia to Europe markets, which are saturated with over capacity.
   “Our NIT League members want to work with strong and reliable partners focused on service and competitive rate structures,” Pisano added. “These developments underscore the continuing need for the Federal Maritime Commission to play its vital role in ensuring that any mergers or VSA participation continues to support a competitive market and adequate carrier choices for American shippers.”
   As indicated by the below charts – also built using data from BlueWater Reporting – the combined Japanese carrier will make a large contribution to the east-west vessel sharing agreement (VSA), THE Alliance, set to launch in second quarter 2017. Based on current deployment figures, the Big 3 will contribute 25,593 TEUs of weekly capacity to THE Alliance in the Asia-Europe trade, roughly 40 percent of the total 66,691 TEUs per week projected for the VSA. In the transpacific trade, NYK, MOL and “K” Line will bring 67,299 TEUs, equal to just over 60 percent of the alliance’s total. (Note: Hanjin capacity is not included in current OCEAN Alliance trade lane deployment projections as the carrier’s vessels have been removed from service, pending the outcome of its bankruptcy proceedings in Korea).
   In response to the merger, Hapag-Lloyd CEO Rolf Habben Jansen said, ”Consolidation is continuing – which is needed and will help the industry to recover and become more sustainable. The merged company will be a very strong and powerful partner in THE Alliance and we are very much looking forward to working together with them for many years to come.”
   “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,” SeaIntelligence Consulting CEO Lars Jensen said. “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, Japan’s “Big 3” 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 added. “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.
   A senior container shipping executive familiar with the Japanese carriers commented on the merger, saying, “It is about time. This has been discussed for years.” He believes the action by the Japanese could lead to consolidation by Taiwanese carriers. Top 20 container carriers headquartered in Taiwan include Evergreen Line, Yang Ming and Wan Hai Lines.
   As a joint venture, the senior executive thought the merger of the three Japanese carriers “should be permissible.” He added, “Further, given the international economic importance of container shipping, it is necessary to help provide a more viable, longer term, more stable platform for international trade.”
   The joint venture, he believes, is an advancement over THE Alliance. “Common fleets, common management, common pricing will be far superior to alliances, which are too loose to really help stabilize the international marketplace, which is essential for international businesses,” he said.
   He also said he believes this will make the Japanese carriers more formidable competitors, if properly managed, also noting how they do not have the same corporate culture, “but strong leadership could solve that over time.”