On the same day that leading shippers councils criticise the New Alliances for putting profit ahead of customers needs, the biggest Japanese container shipping lines unveil their merger.
In October 2016, within weeks of Hanjin Shipping filing for receivership, the three main Japanese container lines – K Line, MOL and NYK – announced their intention to set aside one of the region’s most ferocious industrial rivalries, amid the brutal market conditions, to establish a joint venture for their container shipping businesses.
6TH July 2017; UPDATE:
The European Commission (EC) last week approved the ONE joint venture, citing the joint venture’s “limited impact” on routes to and from Europe, and the significant competition that exists within the shipping industry.
The service will begin by April 1, 2018, creating the sixth largest global shipping company.
The move is widely seen as necessary to remain competitive in a rapidly consolidating shipping industry. Without a merger, the Japanese lines risk being crowded out of East-West trade lanes due to a lack of economies of scale.
South Africa have raised concerns over the merger and in the U.S., the Federal Maritime Commission ruled it could not approve the proposal, deferring the decision to the Department of Justice.
Tthe new joint venture will trade as “Ocean Network Express” (ONE) with its holding company based in Japan and an operating company incorporated in Singapore.
K Line, MOL and NYK said that their decision to integrate was a long-planned reaction to low oil prices, sluggish cargo demand, oversupply of trade capacity, and container freight rates at historic lows.
NYK is scheduled to be the lead partner in the joint venture, with a 38% stake; the other two companies will each have 31%. The three lines are investing ¥300bn ($2.8bn) in the partnership, including 256 container ships.
In light of the Hanjin collapse industry experts agree that the merger – which creates a $19bn joint venture, with the world’s sixth biggest container fleet of 1.4m slots or 7% of global capacity – was a pragmatic reaction to some of the worst conditions in the industry’s 60-year history, that had already pushed many lines into heavy losses.
Over the last eight months the three lines have been progressing towards the merged entity, with service commencement date scheduled for 1 April 2018.
Singapore will be the regional headquarters of “Ocean Network Express”, with regional offices in Hong Kong, London, Richmond in the US and Sao Paulo.
K Line, MOL and NYK are members of THE Alliance, the new container grouping that launched on April 1st this year, and will continue as members after April 2018 as ONE.
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The Japanese lines issued a joint statement. “The move will allow Ocean Network Express to better meet customers’ needs by providing high quality, competitive services through the consolidation and enhancement of the three companies’ global network and service structures.”
Initial challenges for the new carrier – ONE – will include redesigning the parts of the networks not under the scope of THE Alliance’s services and protecting customer relationships by aligning local sales and customer service staff in order for all of them to pull in the same direction.