Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., Japan’s three largest shipping companies, agreed to merge their container operations into one company. Their shares surged.
The joint company will be set up by July 1, according to a joint statement distributed in Tokyo Monday. Combining the container line business of the three Japanese companies will create an entity that will have a market share of 7 percent, making it the world’s sixth largest, according to the firms.
The global container industry has been going through turmoil since the 2008 financial crisis brought trading to its knees. South Korea’s biggest container-shipping line Hanjin Shipping Co. filed for bankruptcy protection in August while other container lines have tried to cut costs and merge with rivals to tide over the crisis.
Nippon Yusen surged as much as 9.9 percent to 222 yen in Tokyo, the biggest intraday jump since May 2013. Kawasaki Kisen jumped as much as 8.5 percent, the most since March. Mitsui OSK jumped as much as 12 percent, the most since 2008.
Helped by cheap loans, container lines worldwide have hung on even as freight rates to move goods have remained depressed. While A.P. Moeller-Maersk A/S, the world’s biggest container-shipping company, has embarked on a restructuring program, companies like Hapag-Lloyd AG and France’s CMA CGM SA have bought out smaller rivals to consolidate the industry.
Notice of Agreement to the Integration of Container Shipping Businesses
Kawasaki Kisen Kaisha, Ltd., Mitsui O.S.K. Lines Ltd., and Nippon Yusen Kabushiki Kaisha have agreed, after the resolution by the board of directors of each company held today, and subject to regulatory approval from the authorities, to establish a new joint-venture company to integrate the container shipping businesses (including worldwide terminal operating businesses excluding Japan) of all three companies and to sign a business integration contract and a shareholders agreement.
Although growing modestly, the container shipping industry has struggled in recent years due to a decline in the container growth rate and the rapid influx of newly built vessels. These two factors have contributed to an imbalance of supply and demand which has destabilized the industry and has created an environment that is adverse to container line profitability. In order to combat these factors, industry participants have sought to gain scale merit through mergers and acquisitions and consequently the structure of the industry is changing through consolidation. Under these circumstances, three companies have now decided to integrate their respective container shipping on an equal footing to ensure future stable, efficient and competitive business operations.
The new joint-venture company is expected to create a synergy effect by utilizing the best practices of the three companies. And by taking advantage of scale merit of its vessel fleet totaling 1.4 million TEUs, realize integration effect of approximately 110 billion Japanese Yen annually and seek swiftly financial performance stabilization.
By strengthening the global organization and enhancing the liner network, the new joint-venture company aims to provide higher quality and more competitive services in order to exceed our clients’ expectations.
- Overview of the new joint-venture company
|Shareholders/||Kawasaki Kisen Kaisha, Ltd.||31%|
|Contribution Ratio||Mitsui O.S.K. Lines, Ltd.||31%|
|Nippon Yusen Kabushiki Kaisha||38%|
|Amount of||Approx. 300 Billion JPY|
|Contribution||(Including fleets, share of terminals as investment in kind)|
|Business Domain||Container Shipping Business|
|(Including terminal operating business excluding Japan)|
|Fleet Size||Approx. 1.4 Million TEU*, 6th in the market with approx. 7% of global|
|Notes1) Figures are as of October, 2016 excluding order book|
|Notes2) Source: Alphaliner|
*TEU: Twenty-foot Equivalent Unit
Agreement date: October 31st, 2016
Establishment of the new joint-venture company: July 1st, 2017 (planned) Business commencement: April 1st, 2018 (planned)
The expected impact of the integration to business performance will be informed by each individual company once details have been confirmed.