Japan’s measured approach to liner consolidation easier on shippers

Japan’s measured approach to liner consolidation easier on shippers

When he gets his first face-to-snout glimpse of the man-eating great white shark in “Jaws,” Roy Scheider’s Martin Brody utters one of the most famous lines in filmmaking history: “We’re going to need a bigger boat.”

Brody and his crew mates don’t get that, of course, and the aptly named “Orca” ends up at the bottom of the Atlantic Ocean.

In some ways, it’s a metaphor of what’s occurring in today’s global container shipping industry, though not quite complete: Ocean carriers do need bigger ships; they just need fewer of them — or, more to the point, fewer operators running them.

Now, for better and in some cases worse, industry interests and analysts who have long called for consolidation are getting it. The problem is, they’re getting it rapidly and in every way: outright acquisitions (CMA CGM-APL and Hapag-Lloyd/United Arab Shipping Co.), straight mergers of like-minded, if competitive, national interests (Cosco-China Shipping and, most recently, “K” Line-MOL-NYK Line), and outright failure (Hanjin Shipping).

For shippers, adjusting to this wave of consolidation likewise comes in degrees, all related to the level of disruption it causes. Disruption from the “K” Line-MOL-NYK merger will probably be minimal because Japan’s Big 3 will integrate over the next 18 months, and they already operate in the same alliance. Classify that deal as mildly disruptive.

More disruptive are deals that involve cultural integration and restructuring of alliances and the networks within them. Cosco and China Shipping, members of different alliances, triggered that wave when they merged in the spring. Classify this form of consolidation as moderately disruptive.

And, of course, there is the most severe of consolidation-related disruption: the collapse of a carrier such as Hanjin, whose vessels were still holding shippers’ boxes two months after dropping anchor, perhaps for good, on Aug. 31.

That Japan’s Big 3 are taking a measured approach to their merger, which stands in contrast to most other container shipping mergers — not to mention the path South Korea took with Hanjin — and sends a strong signal to the market: “We care about execution, and we care about our customers.” It’s a respect retailers, manufacturers, agricultural interests, and other shippers that are the nerve center of global economic growth say they have lacked for years, whether it be from longshore labor interests, regulators, or service providers.

The second, more obvious, signal the Japanese carriers are sending is one of survival. Rather than waiting until a Hanjin-like failure was inevitable or risking being swallowed by a bigger, non-Japanese company, the carriers, which expect to post combined losses of some $3 billion in their current fiscal year, are controlling their fate.

Attention now is turning to other carriers in similar shape, scope, and national ties as Japan’s Big 3. “All eyes must now surely be on Taiwan, home to three major carriers — Evergreen Marine Corp., Yang Ming Line, and Wan Hai Lines,” Anton Alifandi, a political risk analyst at IHS Country Risk (a sister division of JOC.com within IHS Markit), wrote in a research note the day after the Japanese carriers announced their merger.

Taiwan and other countries with shipping interests could learn from the Japanese strategy, as well as from the words of NYK Line president Tadaaki Naito during a joint press conference announcing the merger, “The aim of becoming one this time is so none of us become zero.”

It’s not, after all, the size of the boat. It’s what you have on it. 

Contact Chris Brooks at chris.brooks@ihsmarkit.com and follow him on Twitter: @cbrooks_joc.