Japanese Companies Decided To Merge Container Business

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Japan’s three largest shipping companies signed the agreement for merger on Monday, the companies explained that in order to secure their businesses, it was necessary to merge and combine the resources to survive.

One of the merging company, Yusen Kabushiki Kaisha, said that individually it was difficult to survive and their bleak prospects to make any further profits. He further explained that Hanjin Shipping, one of the biggest Korean shipping company’s bankruptcy in August, has shaken the shipping industry, due to which shipping companies in Europe and the middle were finding benefits in acquisitions and mergers. Hence, it was in the best of interests for the Japanese companies to merge in order to survive in the unfavorable economic conditions as separate entities.

The president of Nippon Yusen, Tadaaki Naito said in a news conference that in order to avoid any closures and bankruptcy, it was a necessity to build one strong company and reap benefits from it. Through combining their container operations, they will be able to reap higher profits. The stated business that it will create is worth 300 billion yen or $2.9 billion, in accordance with a news release.  It will have 7 percent of the world market by combining and operating with 256 ships. Each company will own a 31 percent of the new company where as Nippon Yusen will have a share of 38 percent.

The expected cost reductions by combining their fleets is 110 billion yen annually. Completion of the deal will be on July 1, and the operations will be functional in April 2018. However, the bulking shipping of each company will remain independent.

The global shipping industry has been struggling since 2008. The financial crisis around the world has hit the trade volumes as well as the flow of trade immensely. This in turn has reduced the shipping of consumer goods. Europe has been a state of crisis due to debts, the USA is also struggling to maintain its recovery and china’s growth rates have had slow pace.

Nevertheless, the concerned authorities have been questioning if these mergers will increase the shipping charges for the consumers. They are more concerned of the multiplier effects of mergers on the entire economics around the globe. Kawasaki Kisen does acknowledge that the mergers reduce competition. He says that it’s a big decision that will have a larger impact specially when European companies are turning in to oligopolies.

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