Dive Brief:
- Japan's three largest shipping companies announced Monday they would merge their shipping operations, effective July 1, 2017, according to various news outlets.
- The joint venture between Nippon Yusen (NYK), Mitsui O.S.K. Lines (MOL) and Kawasaki Kisen Kaisha (K Line) is expected to save $1.5 billion a year, according to The Wall Street Journal. The three plan to invest roughly $28 billion of both cash and assets into the joint venture, which will become the world's sixth largest maritime carrier.
- The companies attributed their decision to sluggish cargo demand, low oil-prices and an oversupply of capacity which has led most shipping lines to record losses. The Japanese companies' membership of THE Alliance and similar company cultures also played a role in the decision, according to the press release.
Dive Insight:
The new world of maritime shipping is taking shape, and it's looking both increasingly consolidated and independent of parent companies.
NYK, MOL and K Line all operate other business ventures, including offshore energy, air cargo, real estate and RoRo ships, so rather than merge the diverse assets the companies are creating an equity-based joint venture to handle the struggling shipping assets.
Together, the new venture will handle 1.382 million TEUs advancing each company into a mid-sized shipper (1-1.5 million TEUs) rather than the smaller class (under 1 mil TEUs). The shipping lines had already reached a similar economy of scale through participation in THE Alliance, but the official combination facilitates both the operational costs and logistics processes involved in acquiring the scale.
Survival in business requires adaptation to market conditions, which shipping lines are rapidly addressing. Maersk Line, for example, recently announced it would split its oil and shipping businesses to allow for greater operational flexibility in both struggling industries.
But with bankruptcies darkening the waters, smaller lines are turning to mergers and alliances in hopes of enduring troubled times.
