Drewry: Japanese Merger Could Spark Second Wave of M&As
- Business & Finance
Driven by the need to stop the cost competitive advantage of the bigger lines growing, a second, smaller wave of mergers and acquisitions involving medium-sized container carriers is a high probability, according to shipping consultancy Drewry.
While the current wave of M&As among container lines does not directly solve industry-wide overcapacity, only their ability to survive, the industry is moving towards fewer but stronger, and in time more stable carriers.
After the big three Japanese shipping companies, Kawasaki Kisen Kaisha (K Line), Mitsui O.S.K. Lines (MOL), and Nippon Yusen Kabushiki Kaisha (NYK Line), agreed to establish a new joint-venture company to integrate their container shipping businesses, the move is expected to cast medium-sized carriers adrift.
The merger, planned to commence operations in April 2018, will further contribute to the rapid consolidation of the container carrier industry and will create a very clear dividing line between the biggest and medium-sized carriers, which could be the spark for even more M&A, Drewry said.
The formation of the J Lines is in keeping with the current wave of M&A activity that is driven by survival instincts and potential cost savings from greater scale economies.
“With the industry at the start of a long road to recovery there is huge upside potential for the enlarged carriers that can stick it out. However, there are still some large obstacles that need to be hurdled to achieve profitability again, most obviously the industry’s structural oversupply, which none of these merger deals solve,” Drewry said.
The shipping consultancy added that the end result of this industry restructuring must be sensible commercial pricing and an emphasis on revenue improvement. Cost savings, synergies and economies of scale by shipping lines are necessary, but are insufficient if services continue to be provided at non-compensatory prices, according to Drewry.