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Maersk says mergers are needed as biggest Japan rivals team up

Tuesday, November 1, 2016 - 17:12

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AP Moller-Maersk A/S, owner of the world's largest container line, said mergers like the combination of its three main Japanese rivals provide relief to an ailing industry that has been characterized by over-capacity.

[COPENHAGEN ] AP Moller-Maersk A/S, owner of the world's largest container line, said mergers like the combination of its three main Japanese rivals provide relief to an ailing industry that has been characterized by over-capacity.

Nippon Yusen KK, Mitsui OSK Lines Ltd and Kawasaki Kisen Kaisha Ltd said on Monday they plan to merge, giving them control of 7 per cent of the world's container-shipping trade. Its the latest example of industry measures to create scale in an effort to adapt to a world in which freight rates have been under pressure since 2007.

Soren Skou, Maersk Line's chief executive officer who also runs the Maersk group, said last month the Copenhagen-based company will stop buying new ships and instead try to expand through takeovers.

"We welcome consolidation," Mikkel Elbek Linnet, a spokesman for Maersk Line, told Bloomberg in an e-mailed reply to questions. "Our industry is fragmented and consolidation can help transform our business for the benefit of our customers." The comments come as Maersk puts its group structure under strategic review. Management has said it wants to split the energy business off from its transport operations.

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An excess of vessels and weak trade growth have driven container lines to try to under-bid each other on the rates they offer clients. The climate has proven lethal for some industry members, with South Korea's biggest line Hanjin Shipping Co filing for bankruptcy protection in August. Maersk Line may be interested in buying parts of the company, David Kerstens, a transport analyst at Jefferies International Ltd, said last month.

Efforts to date to consolidate have included agreements in parts of the industry to share ships, to avoid the cost of building up individual fleets. But Maersk says that may be a less effective way to achieve scale than outright mergers.

"What we see is a consolidation wave," Mr Linnet said. "How big it turns out to be, is difficult to say. Consolidation can unlock fixed and variable cost efficiencies not possible in a Vessel Sharing Agreement."

Maersk, which hasn't made a large acquisition in more than a decade, is in an vessel alliance with the world's No 2, Mediterranean Shipping Co. The Danish conglomerate is due to report third-quarter earnings on Wednesday.

The Japanese trio planning to merge is part of a vessel-sharing group known as The Alliance. The deal means that Hapag-Lloyd AG will lose its dominance, according to Thomas Wybierek, an analyst at NordLB. The dynamic in The Alliance has also shifted since Hanjin went bankrupt.

The three Japanese container lines will probably get merger approval from the relevant competition authorities, according to Peter Sand, an analyst at BIMCO, which represents ship owners and operators in about 130 countries.

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