Of all the challenging chief executive positions in the global container sector, British Jeremy Nixon seems to occupy the most difficult of all.
Nixon has not only, since July, headed what must in his own words be the container industry's biggest upstart – the merger of three of Japan's biggest carriers, K Line, NYK and MOL, all three of which are combining their container businesses and terminals in a new joint venture set to launch operations in April 2018 from a new global HQ in the Marine One business neighborhood in Singapore.
We've actually started over completely, and we're probably the industry’s biggest startup"
A merger of three former rivals which, for various reasons and up until just a few years ago, was deemed unlikely, despite all three carriers being Japanese. Such a merger was considered unlikely because the container sector in just a short period of time had changed forever, and that scale could now be crucial in terms of ensuring survival.
Nixon is naturally perfectly aware of this latter fact, after a career spanning more than 30 years in international container shipping which has seen him serving in senior positions at P&O Nedlloyd, Maersk Line and NYK Line in Europe, North America and Asia.
The biggest startup
"We've actually started over completely, and we're probably the industry's biggest startup. The traditional way of doing things is that company A takes over company B and C. But we're three companies, so no one's taking over the second or third party. As such, we've started from scratch with a new platform, a new brand and a new setup, while we gradually bring assets and employees into the new unit. This is probably the best way to do it, and we are therefore taking our time and not forcing anything, and we strive to plan all elements in minute detail," says Nixon in an interview with ShippingWatch.
He joined NYK Group almost 10 years ago as Head of Europe, and as he in 2012 was appointed CEO of the container unit, and in July this year was tapped to head the merged venture Ocean Network Express, ONE, he is by far the highest ranked foreigner in the history of the three major Japanese shipping empires.
A complex integration and the creation of a new brand as well as headquarters for the operating unit ONE employing around 400 people in Singapore is one aspect of the matter.
But another and perhaps ultimately more important process is the venture's position in a future container market – which after the merger wave seen in recent years is now headed toward an unparalleled competition climate – among mega-carriers Maersk Line, MSC, CMA CGM and not least Cosco.
All signs seem to indicate that the state-owned Chinese conglomerate will come roaring into market in 2018 with a massive newbuild program and an at least indirectly stated goal to, going forward, handle a very large part of container volumes in and out of China, and Nixon and Ocean Network Express will have to find its place in this scenario.
It's a matter of having a size that ensures survival under the current conditions in the sector"
In this climate, where economies of scale and low unit costs achieved with ultra-large vessels of around 20,000 teu are heralded as decisive, Nixon and ONE will work to make its container business profitable.
The three Japanese carriers in Ocean Network Express combined will represent seven percent of global container capacity, making the venture the world's sixth-largest container carrier.
The big question among leading container analysts, however, concerns how the carrier, as member of the smallest of the three major alliances – The Alliance, alongside Hapag-Lloyd and Taiwan's Yang Ming – will handle competition from behemoths such as 2M, with Maersk Line and MSC, and Ocean Alliance, which counts CMA CGM, Cosco and Evergreen.
Altogether, the three container alliances will control a vast majority of the global container capacity. In this equation, ONE and The Alliance will be the smallest players in terms of number of vessels and their global network.
"For Ocean Network Express, our future is not just a matter of being big. We need to be sufficiently big to survive, while remaining small enough to care. We're not as such positioning ourselves as a mega carrier, but we have a strong global network. We're part of The Alliance and are thus present on the East-West routes between the Far East and Europe, and we have a strong coverage on intra-Asia, Latin America and Africa as well as all of Oceania," Nixon tells ShippingWatch, noting that the three Japanese container carriers have historically been stronger on the intra-Asian routes and the Pacific, and in light of strong growth forecasts for trade between numerous Asian nations:
"It's a matter of having a size that ensures survival under the current conditions in the sector, and with these core values we hope to stay very close to the market and maintain close relations with our customers."
ONE's three Japanese stakeholders, of which NYK Group is biggest with 38 percent and K Line and MOL have 31 percent, picked Singapore as base for the joint company after looking at two or three other HQ candidates.
"Singapore fit with our business due to its large maritime coverage and government support. We're looking to have many different nationalities among our staff at headquarters, so we need to be somewhere cosmopolitan where it's easy to live and work. We also have a lot of operating activity in Southeast Asia, as many of our customers pass through here."
You mention the ability to survive the future container market. Have you made any choices that will make ONE follow different paths than the biggest players in the market?
"Yes, I'd say so. We want to have an aggregate capacity of 1.75 million teu. A few years ago we would have been considered a mega-carrier, which at the time was defined as a carrier with more than a million teu. Today we're up against companies with capacities ranging from 2.5 million to 3.5 million teu. We're not in this league, but I believe we can offer a very good coverage of the market through the alliance with Hapag-Lloyd and Yang Ming, with 32 weekly services which cover the Pacific, the Atlantic and Asia-Europe."
"It's a competitive network, and we will also be a fairly strong player on intra-Asia, which will be integrated with our deep-sea products."
"As the consolidation in the container market progresses, each carrier will operate with their own strategy. This could be as a low-cost operator and in terms of how to differentiate themselves from the other players. We intend to differentiate ourselves in what we can offer customers, and this is historically in the genes of all three Japanese carriers. But we also need more economy of scale in order to ride out the storm in terms of some of the bigger challenges facing the industry."
ONE has "inherited" an orderbook from the three partners in the venture, with one ultra-large 20,000 teu vessel underway from MOL as the last in the largest segment, while 12 ships of 14,000 teu each will be delivered in the coming years.
"The 14,000 teu ships are highly flexible on Asia-Europe, Asia-Pacific, on the Pacific and the Middle East, as well as perhaps Latin America. Our current orderbook is sufficient, but we will obviously review our fleet with the next 18 months. We are right now on the verge of technological developments in ship design and fuel, where we need to decide on either scrubbers, more expensive low sulfur fuel, LNG or a fourth option entirely."
"It is currently very difficult to pick a future-proof solution in light of the technological developments we’re seeing these days. So we need to be careful, and these are difficult decisions," says Nixon.
For Jeremy Nixon and Ocean Network Express, all focus is now aimed at next year:
"For us 2018 is a matter of keeping our feet on the ground, and on walking before running. In 2019 we will look at the competitive landscape in the sector and decide how to adapt."
With just 12 container ships in the 18,000-22,000 teu range, analysts such as Alphaliner estimate that The Alliance is under pressure and will remain so in the container market in the coming years – a situation that seems exacerbated by the most recent orders for a total 20 ultra-large vessels, of which France's CMA CGM in Ocean Alliance and MSC in the 2M alliance with Maersk Line account for 9 and 11 vessels of around 22,000 teu, respectively.
English Edit: Daniel Logan Berg-Munch