TOKYO • Japan's three biggest shippers agreed to combine their container operations to create the world's sixth-largest box carrier, as the industry steps up consolidation this year amid a global turmoil in the sea-cargo business.
Nippon Yusen KK, Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha, which are predicting operating losses this year, will create a company that will control 7 per cent of the world container-shipping trade, according to a joint statement in Tokyo yesterday.
The combination will need to be approved by regulators in the European Union, United States, 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 line Hanjin Shipping filed for bankruptcy protection in August while others like AP Moeller-Maersk, the world's biggest, have restructured to cut costs even as rates to move shoes and television sets stay depressed.
"It feels more of a merger for survival," said Sunrise Brokers trader Mikey Hsia 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."
The combined entity will be formed by July 1 next year and will have about 2 trillion yen (S$26.5 billion) in sales, and will be Asia's biggest box carrier after China Cosco Shipping Corp.
It expects to start operations by next April and will have 256 vessels, 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 utilise each others' strengths this way."
Nippon Yusen, Mitsui OSK and Kawasaki Kisen will invest a total of 300 billion yen in the venture, which is expected to result in a "synergy" of 110 billion yen annually.
The companies started talks on the merger of the container lines in spring and will start discussions with major shareholders, Mr Eizo Murakami, president of Kawasaki Kisen, told reporters in Tokyo yesterday. There will not be any change to the bulk-cargo moving business of the three shipping companies.
Mr Rahul Kapoor, a director at Drewry Financial Research Services in Singapore, said: "The way the industry is going, combining their operations is a good thing.
"China has combined its two shipping lines. The Japanese need to combine to survive in this environment."
All the three Japanese companies yesterday 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 clung on even as freight rates to move goods have remained depressed.
While Maersk has embarked on a restructuring programme, companies like Hapag-Lloyd and France's CMA CGM have bought out smaller rivals to consolidate the industry.