Japanese box lines downplay joint venture delay

7/5/2017

Japan’s major container lines have downplayed a delay in establishing their liner shipping joint venture on 1 July as originally scheduled, which is still on track to become the world’s sixth-largest carrier grouping open its planned full launch next year.

In a joint statement, “K” Line, MOL and NYK said progress was being made towards completing the establishment of the new integrated container shipping business, including receiving all the necessary approvals. 

Kawasaki Kisen Kaisha, Ltd., Mitsui O.S.K. Lines, Ltd., and Nippon Yusen Kabushiki Kaisha said: “As of today, the new company to be established has received all necessary approvals for compliance with local competition laws in regions and countries where compliance is required for the new company’s establishment, and progress is being made towards completing the establishment of the new integrated container shipping business. Further details will be announced upon completion of all establishment procedures.”

The lines said South Africa’s recent decision not to approve the initial joint venture  would not prevent the planned creation of the fully combined container line grouping Ocean Network Express (ONE) by its target date of 1 April 2018.

“In the Republic of South Africa, the new company expects to complete the approval process for compliance with competition law before the service commencement date of 1 April 2018,” the three carriers said. “Overall, there is no impact on the three companies’ integration plans for the new container shipping business, and the service commencement date for the new company is likewise unchanged from 1 April 2018.”

As reported in Lloyd’s Loading List, when ONE becomes operational, it will be the world’s sixth-largest carrier when measured by containership fleet with close to 1.4 million teu, giving it a market share of approximately 7% based on today’s fleet, according to Drewry. And assuming no changes to the orderbook – in terms of new orders or delivery delays – by 2021, it will leapfrog Hapag-Lloyd to become the fifth largest carrier, the analyst added.

Under the terms of the joint-venture agreement – covering only the three companies’ containership activities and non-Japanese terminals – NYK will be the largest shareholder with 38%, while MOL and K Line will both have 31%. The distribution reflects NYK’s greater number of owned ships (active and on order) and terminals (10) that it is putting into the JV, Drewry noted.

Between them, the ONE carriers have seen annual container sales diminish by around 20% since the 2014 peak of $20bn to $15.7bn in calendar-year 2016. Moreover, since 1Q15 through 1Q17 the three lines have suffered some $1bn in collective operating losses from container operations, Drewry explained. “It is these heavy losses that spurred the ONE lines to finally come together after years of speculation and seek the cost savings to reverse their fortunes,” Drewry said.

The creation of ONE is in keeping with the rising trend of consolidation in the container industry, following on from recent M&A deals involving CMA CGM and APL, Cosco and CSCL, Maersk Line and Hamburg Süd, and Hapag-Lloyd with UASC, Drewry observed. When treating all of these newly merged carriers as single entities – even though in some cases the acquired company has retained its separate brand – Drewry noted just how concentrated the power is becoming at the top of the ladder.

“As things stand in terms of active and ordered ships, by 2021 when all newbuilds in the system are due to have been delivered, the top five carriers will control a little under 60% of the world’s containership fleet,” it said. “Back in 2005, the same bracket of carriers held around 37%. Come 2021, the top 10 lines will control 80% (55% in 2005) while the three leading carriers in Maersk Line, MSC and CMA CGM, will take about 42% (26% in 2005).”