K Line, MOL and NYK, the big three Japan container shipping lines, have agreed to merge their shipping businesses to create a joint-venture with a total capacity of 1.4m teu and a market share of 7%, which will make them the sixth largest global carrier.
A joint statement released today said the deal was subject to shareholders’ agreement and regulatory approval with a planned establishment of the new company scheduled for 1 July 2017, and the target for business commencement set for 1 April 2018.
The merger means that the lines will be more likely to benefit from the economy of scale benefits enjoyed by the big three of Maersk Line, MSC and CMA CGM.
“The three Japanese companies have made efforts to cut cost and restructure their business, but there are limits to what can be accomplished individually,” explained the statement.
CMA CGM’s acquisition of NOL, Hapag-Lloyd’s merger with UASC, and the merging of the two Chinese state-owned lines – has widened the gap in this sector and proved a drag on consolidated group results for the Japanese companies.
MOL and K Line reported that their container shipping operations were in the red for the first half the financial year ended 31 March 2017. MOL did record a profit of $158m in its second quarter, but this was mainly supported by one-off gains from the disposal of associate companies.
NYK reported a massive $2.2bn deficit after opting to take a huge impairment hit on the value of its ships.
“Although growing modestly, 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. These two factors have contributed to an imbalance of supply and demand which has destabilised the industry and has created an environment that is adverse to container line profitability,” the joint statement said.
“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 shareholding of the container line joint venture will be: K Line 31%, MOL 31% and NYK 38%, with a total contribution of Y300bn, including fleets and share of terminals, but will exclude terminal operating business in Japan.
The total number of ships operated by the joint-ventrue would equal 256 vessels earning a cumulative annual revenue of Y2.04trn.
A successful integration is supported by the fact that the Japanese shipping groups already have a close relationship, with senior executives and operational management naturally familiar with their counterparts at the other companies.