Japanese container shipping lines announce joint venture

Kawasaki Kisen Kaisha Ltd., Mitsui O.S.K. Lines Ltd. and Nippon Yusen Kabushiki Kaisha have agreed 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.

In announcing the planned merger, the three companies say that despite modest growth in their businesses, there has been an appreciable decline in the container growth rate and a rapid influx of newly built vessels, which have resulted in container freight rates being at historic lows, with most shipping companies have been reporting significant losses.

The factors have contributed to an imbalance in supply and demand that has destabilized the industry and has created an environment that is averse to container line profitability.

While the three Japanese companies have taken steps to cut costs and restructure their businesses, they say there are limits to what they can accomplish individually. Also, to maintain membership in a global alliance, a certain business scale level is necessary.

Prior to the announced merger plans, the three companies have cooperated through vessel-sharing agreements and an alliance scheme. Further, the three container lines say they are similar in size, have common corporate cultures and believe the joint venture can leverage the strength of each individual company to create stronger competitor overall.

Under the proposed merger, the parent companies of all three container lines will inject cash and in-kind contributions of vessels and terminal companies’ stocks into to the new joint venture in accordance with agreed share to establish an operating company to manage container shipping and container terminal (excluding Japan) business. The holding company will supervise the operating company as a shareholder.

Combined, the three companies will control 1.4 million TEUs (20-foot-equivalent units), making it the sixth largest container line and giving the merged company a 7 percent share of the global market. The joint venture company is expected to be established July 1, 2017, and business officially will begin April 1, 2018.

Under terms of the agreement, NYK will control 38 percent of the business, while K-Line and Mitsui will each have a 31 percent stake in the newly formed ship line.