Major lines losing too much money in their container divisions
The head of Japan’s largest shipping line – Mitsui OSK – has said that a merger of the three major Japanese container lines into one entity “could be an option” to their financial problems.
Koichi Muto, President of MOL, made the remark amid broad criticism of the way the bigger container lines on the Asia-Europe trades had demonstrated a “lack of self control” that was detrimental to themselves and the industry.
Muto said the idea of a merger “could be an option, of course. At the moment there is no such discussion, but we should be flexible in every way”. He added: “We roughly studied such a possibility, of course.”
He mentioned that all the major lines were losing too much money in their container divisions to be sustainable over the long term. MOL itself is set to lose ?4 billion (US$51 million) this year.
K Line has the greatest exposure and has not joined the trend to charter ultra-large container ships through alliances. K Line is set to lose ?30 billion ($384m) this year.
One obstacle to such a merger is existing service alliances between NYK and MOL.
“Now we are all alliance with partners, and the timing is a very different matter,” said Muto.
NYK has chartered four ultra-large boxships from its alliance partner Orient Oversees International Lines (OOIL), while MOL has chartered five such vessels from its partner, NOL.
Janet Lewis, a Hong Kong-based analyst with Macquarie Bank, believed that the alliance approach can only be temporary.
For OOIL, the parent of Orient Overseas Container Lines, and NOL, the parent of APL, the short-term charters to alliance partners “have been a way of spreading some of the risk of what are big-ticket investments early on”.
But they will want those ships back for themselves to stay in the Asia to Europe trades, said Lewis.
Defending the alliances, Muto said it was too expensive for medium-sized lines to invest great sums of money to simply stay in one trade.
“To go on one route needs 10 ships,” he said. “That’s about $1.5 billion to deploy on one route. We can’t afford that.”
The solution, he said: “We should do it with our partner, getting together as an alliance.”
The idea of a merger is not far-fetched or even unprecedented. Lewis pointed out that three-way spin-offs had occurred in the semi-conductor and mobile phone industries in Japan.
She also pointed out that the spin-off idea would immediately put a newly created “Japan Lines” into the top 10 of global container shipping, and give it sufficient market share and economies of scale on the Asia to Europe trades that would allow it to defend itself against powerful competitors, such as Maersk, MSC and CMA CGM, which collectively control about 46% of the trades.
In an article in IFW’s sister publication, Lloyd’s List, Muto offered an unvarnished opinion of the role of the three sector leaders in stuffing their giant ships to capacity on these trades.
Filling such ships to 100% capacity works “in the short term, over one month or two months. But not for 15 months.
“It would be satisfactory with 80%, but always they try to fill the super-sized containership up to 100%. That’s a silly deed.”
He noted that the three lines had seen deterioration in their rates as a result.