Three of Japan’s big shipping groups, Mitsui O.S.K. Lines Ltd., and recently announced an amalgamation of their ocean shipping companies with the establishment of a joint venture by 1 July 2017 and the commencement of the joint service from 1 April 2018.
There has been a decided acceleration in the rate at which ocean carriers are consolidating. This can be attributed to a rapid entry of new, larger vessels with capacity greater than demand, thus causing freight rates and carrier profitability to tumble as they chase available cargoes. To overcome the resultant imbalance of supply and demand, companies are combining forces in the hope of gaining scale merit.
Alliances can provide increased service levels without adding capacity. Increased capacity utilization leads to a lower unit cost as fixed costs are spread over more revenue units. There are substantial benefits for shipping companies who take part in a consolidation: cost savings, and potential revenue enhancement, expanded service areas, access to larger customer base, greater competitiveness, and enhanced shareholder value.
The benefits, however, do not come without their consequent risks.
This trend toward consolidation will likely continue and accelerate. While the tremendous pressure on smaller lines means that many will be swallowed by larger lines or forced to go out of business, small, successful niche players will hold an important position in the shipping landscape.
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