Japan’s box lines establish joint operating company

7/10/2017

The merger of the container shipping businesses of Japan’s three largest lines has taken a step forward with the establishment today of a holding company and operating company to manage the combined entity.

The three lines, Kawasaki Kisen Kaisha (“K” Line), Mitsui O.S.K. Lines (MOL), and Nippon Yusen Kabushiki Kaisha (NYK) announced the establishment today of the Tokyo-based holding company, Ocean Network Express Holdings, and the Singapore-based operating company, Ocean Network Express Pte Ltd, “for or the integration of their container shipping businesses, including worldwide terminal operation businesses outside Japan”.

The three lines said they would provide further details on 10 July. However, as reported in Lloyd’s Loading List,the three lines earlier this week downplayed the delay in establishing their liner shipping joint venture’s holding company and operating company on 1 July as originally scheduled. They said the joint entity was still on track for its full launch next April when it effectively becomes the world’s sixth-largest carrier grouping.

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.

However, it was unclear at the time of writing what effect there has been of a US ruling in May in which US competition regulators rejected the pre-merger arrangement between the three lines. The carriers were seeking permission from US regulators to share information and conduct joint negotiations with third-party businesses in the US in advance of their planned merger next April. But the FMC concluded that these provisions would violate “gun-jumping” laws that forbid the sharing of competitively sensitive information or the premature combining of the parties.

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).”