By Mike Wackett

Japan’s big three shipping groups – “K” Line, MOL and NYK – have agreed to spin-off their container shipping businesses into a new joint-venture company with a total capacity of 1.4 million TEUs, which would rank as the sixth largest in the world and have a global market share of approximately 7 per cent. A joint statement said the deal was subject to shareholders’ agreement and regulatory approval with a planned establishment of the new company scheduled for 1 July 2017, and the target for business commencement set for 1 April 2018.

“The three Japanese companies have made efforts to cut costs and restructure their business, but there are limits to what can be accomplished individually,” explained the statement. It added: “Under such circumstances, we have decided to integrate our container shipping business so that we can continue to deliver stably high quality and customer focused products to the market place.”

The three companies all operate portfolios of diversified enterprises that include: bulk shipping, car transportation, LNG, tankers, offshore, energy heavy lift and air cargo transportation. It has been agreed that the shareholding of the container line joint venture will be: “K” Line 31 per cent, MOL 31 per cent and NYK 38 per cent, with a total contribution of 300 billion yens, including fleets and share of terminals, but will exclude terminal operating business in Japan.

According to, NYK owns the largest container fleet, with 68 vessels providing a total capacity 507,046 TEUs valued at $2.33 billion; followed by MOL, with 35 ships for 307,449 TEUs, valued at $1.7 billion, and third “K” Line, which owns 31 containerships with a capacity of 240,440 TEUs and a value of $1.2 billion. Including current chartered-in tonnage the total number of ships operated by the joint-venture would equal 256 vessels earning a combined annual revenue of 2.04 trillion yens.

And according to Alphaliner data, the merger of Hapag-Lloyd and UASC will lift the German carrier to fifth in the world rankings at 1,479,968 TEUs capacity, behind the merged Cosco and CSCL at 1,560,999 TEUs, with the proposed Japanese grouping taking the sixth spot with 1,369,728 TEUs.

A factor in the decision to merge their container activities is that the Japanese carriers will all be members of the new THE Alliance east-west vessel sharing grouping from April next year, which makes the integration significantly less complex. Moreover, the Japanese shipping groups have a close relationship that stems from their “common corporate culture” with senior executives and operational management naturally familiar with their counterparts at the other companies.

In the past few years container liner shipping has been a problem child for all three of the Japanese trio as they have found themselves increasingly unable to match the economy of scale unit benefits enjoyed by the big three of Maersk Line, MSC and CMA CGM. Furthermore, the raft of container M&A activity in the past year – CMA CGM’s acquisition of NOL, Hapag-Lloyd’s merger with UASC, and the merging of the two Chinese state-owned lines – has widened the gap in this sector and proved a drag on consolidated group results for the Japanese companies.

Indeed, results for the period April to September show K Line recording a $499 million loss and NYK reporting a massive $2.2 billion deficit after opting to take a huge impairment charge on the value of its ships. MOL actually managed to record a profit of $158 million in its second quarter, but this was mainly supported by one-time gains from the disposal of associate companies.

After the bankruptcy of Hanjin Shipping and the merging of the Japanese trio, THE Alliance will be streamlined into three carriers: Hapag-Lloyd, Yang Ming and the newco Japan carrier, thus overcoming the “too many cooks” criticism that has previously been levelled by analysts at the grouping.

Reprinted courtesy of The Loadstar (