Korean Shipping Giant’s Downfall Leads to a New Joint Venture by Japan’s Largest Lines

The fallout from Hanjin combined with lackluster cargo demand, over capacity, bottoming oil prices and historic low container freight rates drove the decision to merge Japan’s three largest shipping companies. Kawasaki Kisen Kaisha (K-Line), Mitsui OSK Lines (MOL) and Nippon Yusen Kaisha (NYK) announced a joint venture to integrate their container shipping businesses beginning next July. K-Line, MOL, and NYK became part of the New Alliance earlier this year joining fellow members Hapag-Lloyd, Yang Ming, and Hanjin. Hapag-Lloyd strengthened the partnership by expanding through a merger with United Arab Shipping Company (UASC) of the United Arab Emirates. But Hanjin’s demise dealt a severe blow to the future of the New Alliance, especially with the sale of its Asia to U.S. routes and discontinuing operations in Europe.

In the new structure, NYK will have a 38% share in the business and both K-Line and MOL will each have a 31% interest. As result of the merger, their vessel fleet will become the sixth largest carrier in the world with a global share of 7%. The plan is to reshape the business segment by consolidating through this joint-venture and allow for all three companies to keep container shipping as a core activity. The move by these three Japanese lines stays consistent with the current industry pattern of merging and consolidating to counter weak earnings, the downturn in the container growth rate, the swift entry of new larger vessels into service, and also the fall of Hanjin.

These factors continue to plague the global shipping industry by creating an unfavorable environment for profit through the imbalance of supply and demand. However, the jury is still out on whether the trend of mergers and consolidations will actually benefit the disparaged container line industry. MOL enters the merger with a reported $203 million in losses for the first half of the year. K-line had not fared any better as its revenues declined by 26% over the same period. These significant losses coupled the industry’s depressed state makes it seem like a tough climb for them to return to profitability. Only time will tell if this change shows positive results, but in the interim, the new joint venture is subject to approvals by government agencies and other pertinent authorities.