Japanese shipper K Line, MOL, NYK to merged as ONE

News Source: American Shipper

Japan’s “Big 3” ocean carriers are scheduled to set sail as a single joint venture shipping company in April, dubbed the Ocean Network Express.

The container shipping landscape, which has seen its share of changes in recent years, is set to shift yet again come April 1, once the Ocean Network Express Co. Ltd. officially begins operations.

The new joint venture, which was announced in May 2017, comprises Japan’s so-called “Big 3” shipping lines—Kawasaki Kisen Kaisha (“K” Line), Nippon Yusen Kabushiki Kaisha (NYK), and Mitsui O.S.K. Lines (MOL). It follows an announcement made on Oct. 31, 2016, that the carriers intended to integrate their shipping businesses globally, including worldwide terminal operations, with the exception of those in their home country of Japan.

The holding company, which will handle the carriers’ organizational governance, will be based in Japan, while the container line division will be managed out of Singapore. Regional headquarters are in the process of being fully set up in Brazil, Hong Kong, Singapore, the United Kingdom (London) and the United States (Virginia).

ONE’s three members are all members of THE Alliance, along with container carriers Hapag-Lloyd and Yang Ming.

The ONE members are expected to capture a sizable part of the market; in fact, even without having shipped a single container yet, ONE is already ranked the sixth largest in the container shipping market at more than 1.4 million TEUs, following Maersk (3.5 million TEUs), MSC (about 3.1 million TEUs), CMA CGM (2.5 million TEUs), COSCO (1.8 million TEUs) and Hapag-Lloyd (1.5 million TEUs).

ONE is ranked just ahead of Evergreen’s 1 million TEUs and OOCL’s 700,000 TEUs, according to data supplied by the joint venture. As of early this year, ONE partner, NYK, was ranked the eighth largest carrier in the industry, while the other partners, MOL and “K” Line, were ranked 10th and 15th, respectively.

According to data provided by ONE, the new joint venture will offer service across 90 countries, with a fleet size of 1.43 million TEUs and represent about a 7 percent global share. Currently, MOL has an operating fleet capacity of 578,898 TEUs, while NYK’s stands at 594,467 TEUs and “K” Line’s totals 332,409 units, according to data from BlueWater Reporting’s Carrier Ranking Report.

Although it’s already ranked sixth among global carriers, ONE is not expected to hold that position for more than a handful of years. Maritime research consultancy Drewry forecasts that it will leapfrog Hapag-Lloyd to become the fifth largest container carrier as measured by containership fleet capacity by 2021, assuming there are no changes to the order book.

Starting this year, “K” Line had an order book capacity of 55,480 TEUs, while MOL’s is 20,000 TEUs and NYK’s is 14,026 TEUs, and for a total of 89,506 TEUs, BlueWater Reporting’s Carrier Ranking Report said.

The order book includes several new buildings that are close to delivery, including one ultra-large 20,000-TEU vessel, and 12 14,000-TEU vessels. Officials have said that a fleet review is expected to be performed within 18 months of April’s start of operations. This will ensure ONE offers competitive services and deploys the most technological and environmentally friendly ships.

Despite its sizable initial reach and potential expansion, ONE is not looking to dominate the market. In fact, it’s quite the contrary, according to the joint venture’s chief executive.

In July 2017, when newly appointed ONE CEO Jeremy Nixon gave a presentation to the media in Tokyo, he stated the Ocean Network Express didn’t aspire to become the world’s largest carrier. What it wanted, he said, was to be “just large enough to survive.”

However, NYK President Tadaaki Naito and his counterparts presented a different take on the matter.
During an October address to employees, Naito reportedly said the merger of his company’s liner division with those of “K” Line and MOL would be a “major turning point” for NYK, and the integration would “have far-reaching impact.”

“We have been carefully laying the groundwork. It will be a major turning point for MOL and mark a new beginning.” Junichiro Ikeda, president and CEO, MOL

Likewise, in a New Year’s message to company officers and employees, MOL President and CEO Junichiro Ikeda declared that ONE is a huge venture for the company.
“We have been carefully laying the groundwork,” Ikeda said. “It will be a major turning point for MOL and mark a new beginning.”

“The integration of containership business and overseas terminal business by the three major Japanese shipping companies is a first step in our effort to rebuild our portfolio,” Eizo Murakami, “K” Line’s president and CEO, said in his New Year’s address to employees.

“I believe this new enterprise will deliver the advantages of expansion of scale brought by the integration.” Eizo Murakami, president and CEO, “K” Line

“I believe this new enterprise will deliver the advantages of expansion of scale brought by the integration,” he added. “I expect it will also achieve greater competitiveness by bringing to bear the best practices of the three companies and demonstrate a strong presence in a containership industry that continues to undergo a paradigm shift.”

Although Nixon downplayed ONE’s significance within the overall industry last year, there’s no denying that the three partners involved have a lot riding on the venture’s success.

The Big 3 Japanese container carriers have said there were multiple reasons why they decided to join forces, including low oil prices, sluggish cargo demand, oversupply of capacity, and historically low container freight rates, all of which have affected their bottom lines.

All told, the three carriers have estimated that the integration of their container shipping operations could reduce costs by a combined 50 billion yen ($449 million) for the fiscal year ending in March 2019, The Nikkei newspaper reported in December, quoting NYK’s Naito and “K” Line’s Murakami.

Over the next three years, ONE’s annual savings are expected to reach 110 billion yen ($987 million) due to streamlining efforts, such as consolidating bases and trimming payroll. Each carrier’s contracts setting port usage fees and other costs are to be consolidated to achieve the best of the three rates for ONE. Additionally, subsidiaries and shipping agencies will be combined or scrapped, the NYK and “K” Line chiefs indicated.

Naito, Murakami and MOL’s Ikeda have all said they anticipate improvement next fiscal year, thanks to synergies from the merger, as well as a stronger container shipping market.

Combined, the ONE carriers have seen annual container sales diminish by about 20 percent since the 2014 peak of $20 billion to $15.7 billion in calendar year 2016. From first quarter 2015 through first quarter 2017, the three carriers suffered around $1 billion in collective operating losses from their container operations.

“It is these heavy losses that spurred the ONE lines to finally come together after years of speculation and seek the cost savings to reverse their fortunes,” Drewry said in a June 2017 report.

“It is these heavy losses that spurred the ONE lines to finally come together after years of speculation and seek the cost savings to reverse their fortunes.” Drewry

Although the losses have become a concern in recent years, for the fiscal year ending this coming March, NYK expects its pretax profit to rise 11 percent to 65 billion yen ($583 million) and revenue to grow 4 percent to 2.32 trillion yen ($20.8 billion). MOL forecasts a 2 percent decline to 25 billion yen ($224 million), while “K” Line expects to return to the black with a 13 billion yen profit ($116 million), rebounding from the previous year’s 52-billion-yen ($467 million) loss.

ONE’s CEO Nixon, who is British, was a rare pick to lead a firm owned by three Japanese companies. Prior to being named head of ONE in mid-2017, he spent nearly five-and-a-half years as the CEO of NYK Line’s container business. Before that, he was the company’s chief operating officer for almost two years, from May 2010 to March 2012, and between 2008 and 2010 was the managing director of NYK Europe.

He also previously held high-level positions within Maersk Line and the now-defunct P&O Nedlloyd, which was taken over by Maersk in 2006.

Nixon has stated that ONE aspires “to be a global company that happens to be Japanese, rather than a Japanese company that happens to be global.” “We’re probably the industry’s biggest startup,” he told a Danish publication. “We’ve started from scratch with a new platform, a new brand and a new setup, while we gradually bring assets and employees into the new unit. This is probably the best way to do it.” “For Ocean Network Express, our future is not just a matter of being big,” he was quoted as saying by online publication ShippingWatch. “We need to be sufficiently big to survive, while remaining small enough to care. We’re not as such positioning ourselves as a mega carrier, but we have a strong global network.”