The shipping sector isn’t having its best year.
First rates reached historic lows, then Hanjin’s bankruptcy upended the sector and now more consolidation seems the only way to face the downturn.
The merger will make the trio the sixth-largest player in shipping.
“The aim of becoming one this time is so none of us become zero,” Reuters reported Nippon president Tadaaki Naito as saying at a Tokyo press conference.
In a joint statement, the Japanese shippers addressed the declining container growth rate and rapid influx of new vessels in recent years, noting that both factors have contributed to an imbalance of supply and demand, destabilizing the industry. The consolidation that has happened of late as shipping companies fight to stay afloat, the statement noted, has changed the structure of the industry and the merger is seen as necessary to ensure an efficient, competitive and stable business going forward.
“The new joint-venture company is expected to create a synergy effect by utilizing the best practices of the three companies,” the statement noted. “And by taking advantage of scale merit of its vessel fleet totaling 1.4 million TEUs, realize integration of approximately 110 billion Japanese Yen [$1.05 billion] annually and seek swiftly financial performance stabilization.”
This merger is one among many recently and more are likely ahead as shippers continue to realize that even the big guys aren’t safe from the sector’s current conditions.
Germany’s Hapag-Lloyd AG merged with United Arab Shipping Company (UASC) earlier this year, CMA CGM of France is in the midst of acquiring Singapore’s Neptune Orient Lines (NOL), and China’s COSCO and China Shipping Group merged to form China COSCO Shipping Corporation.
“The real Halloween horror story of 2016 is overcapacity,” said Dr. Zvi Schreiber, CEO and founder of logistics tech company Freightos. “3.4% of global shipping capacity will be demolished this year, compared to a 1 percent historical average, and Hanjin’s bankruptcy continues to loom as a warning sign.”
Under the new Japanese shipping venture, Nippon Yusen will own 38 percent of the company, and Mitsui and Kawasaki will hold 31 percent each. The new company should be fully established by July 1, 2017, with business beginning Apr. 1, 2018.
“While mergers and alliances can help carriers coordinate, it doesn’t address the underlying problem of overcapacity and commoditization,” Schreiber said. “Efficiencies driven by technology, transparency and more formal business relationships are key to global carrier survival.”
The future for improving carriers’ market performance, Schreiber added, will be about forwarder digitization, new tech players like Amazon and Uber and transparent online sales.