The three Japanese firms, Kawasaki Kisen Kaisha (K Line), Mitsui OSK Lines (MOL) and Nippon Yusen Kaisha (NYK), said the decision to integrate came on the back of low oil prices, sluggish cargo demand, oversupply of trade capacity, and container freight rates at historic lows.
“Furthermore, the decision to cooperate in the East/West trades made in May 2016 by the creation of THE Alliance was also a factor,” the trio said in a joint statement.
The three Japanese lines are part of the new THE Alliance, including Hapag-Lloyd, Yang Ming and bankrupt member Hanjin Shipping. With Hanjin Shipping shutting down its Europe operations and selling its Asia-US business, the Korean shipowner will find its membership to be of no use to THE Alliance.
UAE’s United Arab Shipping Company (UASC), which has merged with Hapag-Lloyd, will also be part of THE Alliance.
“Container shipping will remain a core activity of all three companies. However the business in this segment will be reshaped through consolidation into a new JV as an equity-method affiliate,” it said.
K Line and MOL will each take 31% stake in the joint business, and NYK will take the remaining 38% stake.
The combined container vessel fleet capacity will total 1.4m teu, making it the sixth largest carrier in the world with aproximately 7% global share, according to estimates from Alphaliner.
The parent firms will contribute approximately JPY300bn ($2.9bn) in cash and in-kind contribution of vessels and share of terminals into the new JV for it to manage container shipping and container terminal (exclude Japan) business.
The new JV is subject to approvals from the relevant authorities and depending on the progress of the approval process, the three Japanese firms may further review the implementation schedule for establishing the new company.
“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."
Both 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.
The bankruptcy of Hanjin Shipping in August this year is the biggest ever in the container shipping sector, underscoring the depressed state of the industry severely weakened by excessive capacity and poor earnings. Global carriers have responded to the crisis by way of mergers and consolidation. France’s CMA CGM completed its acquisition of Singapore’s Neptune Orient Lines (NOL), which owns APL.
The merger of Hapag-Lloyd and UASC is expected to bring about improvements in their profitability and achieve lower transport costs per container.
China’s state-owned giant shipping conglomerates, China Ocean Shipping (Group) Company and China Shipping (Group) Company, had merged to form China Cosco Shipping Corporation (Cosco Shipping), in an attempt to streamline the businesses and better utilise resources.