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Japanese Big Three box biz merger all for the best in today's climate

REACTION to news of the intended merger of the Japanese Big Three's container shipping business was favourable, as was the stock market's rise on Monday's News.

"There will obviously be an upside if they are able to rationalise their overlapping shipping routes," said Hidetoshi Ohashi, the chief credit strategist at Mizuho Securities. "It's better to do something than not do anything."

Said Tadashi Matsukawa, the Tokyo-based head of fixed-income investment at PineBridge Investments Japan: "The environment for this sector is not very good so this is some good news."

Mr Matsukawa said that "K" Line and MOL probably benefit more from the deal because NYK is a "pretty good name", though he remained sceptical about the merits of the deal.

Mizuho Securities said in a report that the deal is positive for the companies' credit profiles and it makes sense to seek economies of scale in a business where differentiation is hard, reported IHS Media.

The cost to insure "K" Line bonds fell 28 basis points to 135 basis points on Monday, according to a CDS trader, who asked not to be identified.

That would be the sharpest decline since April 6, according to data provider CMA. MOL's bond risk dropped 26 basis points to 118 basis points, while NYK's decreased 12 points to 67.

"The decision by the three Japanese carriers to merge their containership businesses does not come as a complete surprise," Greg Knowler, a maritime and trade expert at IHS Markit.

"These carrier lines have reported huge losses in some of the past few quarters. What they lack individually is scale, a crucial requirement when competing on the main east-west trades with the big carriers."

NYK has made a pretax loss for the past three straight quarters, according to a breakdown from the shipping company. MOL containership operations have made a pretax loss for at least the past 20 quarters, while at "K" Line has posted pretax losses for five quarters.