Japan’s three biggest carriers agreed to spin off their container operations and merge them to create the world’s sixth-largest box carrier as the global container-shipping industry continues to shrink.
Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. agreed to merge the box business to create a company that will control 7 percent of the world container-shipping trade, according to a joint statement in Tokyo Monday. The merger will need to be approved by regulators in the European Union, U.S., China and Japan among others.
The global container industry has been in turmoil since the 2008 financial crisis brought trading to its knees. South
Korea’s biggest container-shipping line Hanjin Shipping Co. filed for bankruptcy protection in August while other container
lines like A.P. Moeller-Maersk A/S, the world’s biggest, have restructured to cut costs even as rates to move shoes and
televisions stay depressed.
"It feels more of a merger for survival," said Mikey Hsia, a trader at Sunrise Brokers LLP in Hong Kong. "I see it as a reaction to Hanjin Shipping. The impact is that there won't be any domestic competition. Now, the companies have to compete from a global perspective."
Nippon Yusen shares surged as much as 11 percent to 224 yen in Tokyo, the biggest intraday jump since May 2013. Mitsui OSK jumped as much as 15 percent, the most since 2008. Kawasaki Kisen jumped as much as 10 percent, the most since March, before reversing gains.
The combined entity will be formed by July 1 and will have about 2 trillion yen ($19 billion) in sales and will be Asia's biggest box carrier after China Cosco Shipping Corp. It expects to start operations by April 2018 and will have 256 vessels, according to the statement. Nippon Yusen will own 38 percent of the merged entity while Kawasaki Kisen and Mitsui OSK will each hold 31 percent, according to the statement.
"With joint shipping and alliances, the scale of our operations and business styles, we have many things in common," the shipping lines said in a joint statement. "We thought it would be easier to utilize each others’ strengths this way."
The companies started talks on the merger of the container lines in Spring and will start discussions with major shareholders, Eizo Murakami, resident of Kawasaki Kisen, told reporters in Tokyo Monday. There won’t be any change to the bulk-cargo moving business of the three shipping companies. Nippon Yusen got 30.5 percent of its revenue last year from the liner business. That number was 49.4 percent for Kawasaki Kisen and 42 percent for Mitsui OSK, according to data compiled by Bloomberg.
"The way the industry is going, combining their operations is a good thing," said Rahul Kapoor, a director at Drewry Financial Research Services Ltd. in Singapore. "China has combined its two shipping lines. The Japanese need to combine to survive in this environment.”
All the three Japanese companies forecast operating losses for this fiscal year. Nippon Yusen expects a loss of 25.5 billion yen, Kawasaki Kisen 44 billion yen and Mitsui OSK 15 billion yen.
Helped by cheap loans, container lines worldwide have hung on even as freight rates to move goods have remained depressed. While Maersk has embarked on a restructuring program, companies like Hapag-Lloyd AG and France’s CMA CGM SA have bought out smaller rivals to consolidate the industry.
The spot price to move a 20-foot container to Europe from Asia was $958 at the end of last week, down 22 percent from $1,232 at the start of this year, according to Shanghai Shipping Exchange.
South Korea’s government said Monday that it plans to spend 11 trillion won ($9.6 billion) by 2020 to help the local shipping and shipbuilding industries tide over the slump.