Newest global container line officially established in Tokyo

Newest global container line officially established in Tokyo

"K" Line and its partners continue to make progress toward the establishment of One Network Express.

The world’s sixth-largest liner shipping company was officially established in Tokyo with One Network Express (ONE) bringing together the container divisions of Japan’s three major carriers in a joint venture that will start operating in April 2018.

Kawasaki Kisen Kaisha, Mitsui O.S.K. Lines, and Nippon Yusen Kabushiki Kaisha established a holding company in Tokyo and an operating company in Singapore. ONE has the world’s sixth-largest fleet, with 250 ships and a capacity of 1.38 million TEU, and the joint venture integrates the three companies' container shipping businesses, including their terminal operations outside Japan.

The carriers had planned to set up the joint venture by July 1, but were delayed by regulatory setbacks. However, on July 3 the lines said in a statement that they had received all the approvals necessary to comply with local competition laws in regions where compliance was required. The only country to reject the liner shipping merger proposal was South Africa, but the carriers plan to appeal the ruling.

The US Federal Maritime Commission voted down the carriers’ proposed “tripartite agreement,” saying the Shipping Act of 1984 did not provide them authority to review and approve mergers, but the ONE carriers expect to secure permission to operate in the US by the time the new company starts operations in April next year.

The Japanese carriers first announced in October 2016 that they would be merging their liner shipping divisions into a JV company, further consolidating the industry that at that time had already seen the collapse of Hanjin Shipping, the merger of Cosco and China Shipping, the acquisition of APL by CMA CGM, Hapag-Lloyd merger with United Arab Shipping Company, and Maersk Line’s plan to takeover Hamburg Sud.

The shareholding structure will have NYK holding 38 percent and “K” Line and MOL each holding 31 percent. MOL, NYK, and “K” Line are currently individual members of the vessel sharing agreement with Hapag-Lloyd-UASC and Yang Ming Line. The carriers have said they expect higher rates and greater container volume to come from the membership with THE Alliance.

Merging their container shipping divisions will generate the scale and cost benefits that are essential to be competitive against the industry giants such as Maersk, MSC, and CMA CGM. In October 2016 when the merger announcement was made, “K” Line said: “Since last year in the liner container ship industry, the movement to increase competitiveness by expanding operational scale through merger and acquisition has been actualized, and the business model itself has been drastically changed.

“Now, the three Japanese shipping companies have come to share the same thought, recognizing that in order for us to keep up and compete with these overseas carriers, which will be developing larger-scale operations from now on, what we need is not only to properly grasp market needs and then offer high-quality services, but also to enlarge the business scale.”

An improving container shipping market is lifting the profitability of carriers as rates and volume increase. Cosco Shipping has just announced that it expects to make a first-half profit of $272 million and the ONE lines have forecast a profitable turnaround in their 2017/18 financial year that ends just as their April joint venture begins.

Despite posting combined operating losses of $550 million in the year ended March 31, MOL, NYK Line, and “K” Line announced in filings to the Japan Exchange that they expect to record a combined operating profit of $517 million in the 2017/18 year as the container shipping market stages a gradual recovery.

“We expect the Asia-North America cargo volumes to continue to be firm on the back of the strong US economy. On Asia-Europe routes, we also expect cargo volumes from Asia to be firm as well based on current demand levels,” MOL said in its outlook.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.