Japan consolidates the maritime shipping industry

TOKYO – 11 May, 2018

Mitsui O.S.K. Lines (MOL), Kawasaki Kisen Kaisha Ltd. (K-Line), and Nippon Yusen Kabushiki Kaisha NPNYY – (NYK Line) have created Ocean Network Express, or ONE become the sixth largest container operator in the world with a combined fleet of 230 ships. The first operations started last month and in these days they injected 3 billion dollars inside it.
NYK is the main partner of ONE, with MOL the second largest participant.

Junichiro Ikeda, head of MOL, said in an interview: “It is the first time in the shipping sector that three companies jointly launch a new business on an equal footing“. ONE controls almost 7% of the global container market, well below the two-figure quotas of the three major shippinglines, the Danish Maersk Line, the Mediterranean Shipping Co. and the French CMA CGM SA.

The industry annually moves about 4 trillion of manufactured goods, from designer clothes to electronics, to food and heavy machinery. But an excess of supply in water and the fierce price wars have pushed freight costs well below breakeven levels in recent years, plunging most of the operators into the red and pushing some of them out of business. The crisis has pushed the highly fragmented industry to consolidate with the 20 largest world operators reduced to seven in the last three years. Together they control about three-quarters of total container transport capacity. The turmoil has also triggered a showdown among policy makers in many countries, from Germany to Japan, which saw commercial transport as an important strategic advantage for their national economies. The failure of Hanjin Shipping of South Korea in 2016 caused a major shock in the entire sector, particularly in Seoul, where the eighth largest company in the world was considered an important gear, in the economy driven by the country’s exports.
The people involved in the ONE merger say it was seen as a critical move as carriers with a 3% market share or less risk going out of business or being swallowed up by bigger players.
Although still small in global terms, ONE is dominant in intra-Asian trade routes and is the largest player in transporting Asian exports to the United States through the Pacific, with a market share of 16%, according to the data provider maritime IHS Markit. It also controls 37% of the container’s capacity in and out of Japan, the third largest economy in the world.
“I think that future trade will grow mainly in these regions, and the market share that ONE holds is not small,” said Ikeda. The same refused to comment on the impact of possible commercial tariffs in the ongoing talks between the United States and China. Consolidation gives shippers fewer operators to choose from and some can move from one to other operators, but Mr. Ikeda is not worried.
“If you focus on the services that come and go from Japan, our competitors are absolutely incomparable with us,” he said. “In terms of frequency …. ONE is superior, so even if customers desperately search for a choice, they do not have many.”
ONE, which opened its headquarters in Singapore, started operations on April 1st in what was a very difficult start. Brokers and shippers have said that shippers in the first 20 days of activity have faced problems in booking and in communication with the courier. The carrier said the problems are due to a new IT system and the difficulties in transferring staff from the three partners to new offices around the world. Mr. Ikeda said it will take some time for the former rivals to fully integrate.
“Although they are all Japanese companies, there are differences in doing things between them,” he said. “Their mutual understanding has deepened during the preparatory period, but I think it is a great challenge to combine the way we conduct business in a real sense”.
MOL alone is the world’s largest natural gas transportation company, which operates 76 ships on a global fleet of 440 ships and plans to add 19 other LNG vessels to its fleet in the coming years. In the container sector, ONE is part of THE Alliance, which also includes the German Hapag-Lloyd AG and the Yang Ming Marine Transport Corp of Taiwan. It is one of the three largest maritime groups formed to share networks, ships and ports, saving billions of dollars each year for fuel, port handling and other expenses.

Fonte: WSJ