Plagued Global Maritime Industry Spurs Consolidation

By Mike Antuono, International Business Writer

On Monday October 31, Japan’s three largest shipping companies agreed to merge portions of their business. This mandatory function has resulted in an effort to save on costs in an increasingly difficult environment.

The maritime industry has seen increasing pressure now for nearly a decade. The financial crisis, or Great Recession, severely impacted trade volume around the world.

In the wake of financial downturn, there has been slower than expected growth as the Eurozone struggles with debt, China’s growth slows, and the US experiences a slow recovery.

The problems of economic recession have been exacerbated by moves made prior to 2008 – shipping companies engaged in expansion efforts on the basis of expected future growth. When global trade began to slow, shipping companies were left with over capacity, leading to an industry wide decrease in profitability.

As a whole, the industry has seen increasing external pressures as well. Increasing regulatory concerns surrounding environmental protection have hurt the business as a whole.

Initiatives have been taken worldwide to reduce air emissions, vessel discharge, and effect on marine habitats.

A more minor industry detractor is the rise in piracy; these attacks have become increasingly prevalent in the vicinity of Somalia, and have consequently increased security costs.

The shipping industry suffered its largest blow in recent history with the bankruptcy of South Korea’s largest shipping company, Hanjin Shipping. Companies have thus sought to protect themselves from similar crises through consolidation.

The merger between Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., will create the world’s sixth largest box carrier. Combined, they control 7 percent of the world container-shipping trade. The deal is awaiting approval from regulatory bodies in the E.U, U.S., China, Japan, and other areas.

Nippon Yusen shares surged 6.4 percent to 215 yen in Tokyo on Monday, the biggest gain in almost two months. Mitsui OSK jumped 5.6 percent, the most since Sept. 5. Kawasaki Kisen ended the day 0.4 percent higher after earlier climbing as much as 10 percent.

Mergers such as these have become more and more commonplace in an effort for survival – the reduction of fixed costs has turned into a necessity with the struggling industry.

The merged companies will be formed by July 1, 2017, and begin operations by April 2018.

They will begin operations with 256 vessels, generating roughly $19 billion in annual sales revenue. All three companies involved in the merger expect operating losses this year.

This deal has been in discussion since the spring, and talks with major shareholders are expected to begin soon, according to Eizo Murakami, president of Kawasaki Kisen.

Container lines worldwide have remained in play due to low borrowing costs, despite the depression of prices in freight rates weighing on revenues. Companies like Hapag-Lloyd AG have consolidated their industries through the purchase of smaller companies, while Maersk has begun restructuring.

The industry trend of large nationally based corporations may be the way of the future. Competition has become increasingly focused internationally rather than between companies within the same country.

A version of this article appeared in the Tuesday, November 8th print edition.

Contact Mike at

michael.antuono@student.shu.edu

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