The three largest shippers in Japan have agreed to merge their container operations to enable them compete better amid slump in global trade.
Nippon Yusen K.K., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha announced in a joint statement released in Tokyo on Monday plans to merge their respective container shipping operations in order to become a major global player.
The merger, which still has to be approved regulators in several countries, will lead to the emergence of the sixth-largest container shipping player in the world. The new company is expected to control around 7 percent of the global trade.
“With joint shipping and alliances, the scale of our operations and business styles, we have many things in common,” the statement read. “We thought it would be easier to utilize others’ strengths this way.”
Shipping companies have not fully recovered since the financial crisis of 2008. Demand for commodities has slumped. Industry players have also inundated the market with capacity and drove down charter rates in a bid to maintain market share. More and more shippers are now entering into alliances to guard against huge losses that could drive them out of business.
A recent major causality of the downturn is the South Korean ocean carrier Hanjin Shipping Co., which filed for bankruptcy protection late August. This, some analyst believe, must have been considered a warning shot to Japan’s three largest shippers.
“The way the industry is going, combining operations is a good thing,” said Rahul Kapoor, a director at Singapore’s Drewry Financial Research Services. “China has combined its two shipping lines. The Japanese need to combine to survive in this environment.”
The shippers said on Monday that they expected to report operating losses for their full fiscal year. Kawasaki Kisen and Nippon Yusen forecast operating losses of 44 billion yen and 25.5 billion yen respectively. Mitsui O.S.K. expects to report 15 billion yen in losses.
Shares of Nippon Yusen and Mitsui O.S.K jumped significantly higher on Monday in Tokyo. Bloomberg reports Kawasaki Kisen also ended the day 0.4 percent up after rising earlier by as much as 10 percent.
The companies said they intend pumping 300 billion yen into their joint venture. Nippon Yusen will own 38 percent stake in the new company, while the other two shippers will get 31 percent apiece.
The new corporate entity, which is to be established in July 2017, will commence operations in April 2018 with 256 vessels. It is expected to be the second-largest shipper in Asia, after China Cosco Shipping Corp., and will have roughly 2 trillion yen ($19 billion) in sales.
Shipping companies are using different approaches to stay afloat amid the slump in the global container business. While some shippers such as A.P. Moeller-Maersk A/S are undergoing restructuring, others like Hapag-Lloyd AG and CMA CGM SA have merged smaller rivals into their operations.
The three Japanese shippers will not have their bulk-cargo shipping businesses affected by the merger.
The transaction requires approval of regulators in the European Union and countries, such as Japan, U.S., and China.