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Flurry of mergers signals global shift toward megashippers

China's Cosco deal, Japan's new container line ONE highlight trend

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Panama canal workers tide a COSCO container in Agua Clara, on the outskirts of Colon City, Panama.   © Reuters

TOKYO -- The global marine shipping industry is consolidating fast, leading to a new trend toward so-called "megashippers."

Two recent high-profile cases in Asia highlight this trend. On Monday, three Japanese container lines -- Nippon Yusen KK, Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha -- met the press to outline their new joint business. They agreed to the deal in October last year, roughly two months after South Korea's Hanjin Shipping went bankrupt.

The new company, Ocean Network Express, was established on July 7 with initial capital of $200 million. It is headquartered in Singapore, with the holding company located in Japan. ONE will start service in April with some 240 ships. Most of the three companies' 10,000 employees will likely retain their jobs, though management did not elaborate on the possibility of staff cuts.

Ocean Network Express' CEO Jeremy Nixon, second from right, and the presidents of the three Japanese shippers that created the company meet the press in Tokyo on July 10.

The Japanese companies named Jeremy Nixon, Nippon Yusen's head of global container unit, as ONE's CEO. He is British and joined Nippon Yusen in 2008. Before Nippon Yusen, he had worked at Maersk. With such experience, he is expected to be able to control ONE in the current difficult business environment. 

Based on data from Alphaliner, ONE's total capacity is about 1.44 million 20-foot equivalent units, making it the world's sixth-largest container line and controlling about 7% of the market. That is still less than half the size of the two largest companies -- A.P. Moller-Maersk of Denmark and Mediterranean Shipping Company of Switzerland.

The new company is "big enough to survive, but small enough to care for its customers," Nixon said at Monday's press conference in Tokyo.

He said survival is not only about size. Nixon made the comment in response to a question related to the flurry of big consolidation deals sweeping the industry in recent years in the face of such headwinds as China's slowdown and the rise of online shopping. In 2016, France's CMA CGA purchased Singapore's Neptune Orient Lines, and China Cosco Shipping was created through a merger of two Chinese state-owned players.

Cosco deal

The latest such move came on Sunday, when Cosco announced it was acquiring Hong Kong's Orient Overseas International for 49.2 billion Hong Kong dollars ($6.3 billion), a deal that would create the world's third-largest container shipper. CMA CGM and Taiwan's Evergreen Marine were apparently also interested in buying the Hong Kong company. OOIL owns Orient Overseas Container Lines.

Cosco's desire to grow is reflected in the takeover numbers: The purchase price per share is 31% higher than OOIL's closing price on Friday, a large premium.

Cosco said in a statement, "By leveraging the strengths of each company and achieving synergies, the businesses will enhance their operating efficiencies and competitive positions to achieve sustainable growth in the long term."

The Japanese trio, meanwhile, expects their merger to save them a total of 110 billion yen ($963 million) a year. They desperately need to slash costs, considering that Nippon Yusen and Kawasaki Kisen logged net losses of 265 billion yen and 139 billion yen, respectively, for the year ended in March. Only Mitsui O.S.K. managed to eke out a profit, at 5 billion yen.

However, pursuing efficiency is only part of the equation for success; a company also needs a growth strategy. ONE had few details to offer in this respect at Monday's briefing, providing no target numbers or financial goals. All the company said was that it intends to distinguish itself through certain core strategies, such as offering IT-backed services.

"The business environment will remain difficult for the container shipping industry," Kawasaki Kisen President Eizo Murakami said at the conference. If that is the case, it is possible that shipping lines -- in the absence of clear blueprints for growth -- will continue pursuing consolidation simply to achieve economies of scale.

Nikkei staff writer Daisuke Harashima in Dalian contributed to this report.

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