NPNYY Nippon Yusen Kabushiki Kaisha (PK)

TOKYO—Japan's three largest shippers said Monday they would merge their container shipping operations to create the world's sixth-largest player in an effort to cope with a global decline in the container business.

Nippon Yusen K.K., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., Japan's top three shipping lines in terms of revenue, said they agreed to form a joint venture that they estimated would save them a combined total of around ¥ 110 billion ($1.05 billion) annually through synergies.

Bulk shippers have been hammered as demand for commodities has plummeted and ship charter rates have collapsed. Carriers have flooded the market with capacity and reduced rates to maintain market share amid a slump in global trade.

The downturn has led to an increasing number of alliances and moves toward consolidation in the industry, while also leading to the bankruptcy of a global ocean carrier. In late August, South Korea's Hanjin Shipping Co., one of the world's largest shipping lines, filed for bankruptcy protection, sending shock waves through the global supply chain.

The three Japanese shipping companies said they plan to put ¥ 300 billion into creating the joint venture, including the value of ships and terminals that will be transferred to the venture. They said the combined operation would hold a 7% global market share. They plan to establish the new company in July 2017 and start operating from April 2018.

"The decision by the three Japanese carriers to merge their container shipping businesses does not come as a complete surprise as these carrier lines have reported huge losses in some of the past few quarters," said Greg Knowler, a maritime and trade expert at IHS Markit, in a note to clients.

News of the combination sent share prices of the three companies up, despite weak earnings from all three released Monday.

Nippon Yusen and Kawasaki Kisen both reported operating and net losses for the April-September period, while Mitsui O.S.K. reduced its forecast for the year ending March 2017. Mitsui O.S.K. now expects a net profit of ¥ 7 billion for the year compared with an earlier forecast for a ¥ 15 billion net profit.

Nippon Yusen finished trading in Tokyo Monday up 6.4%, while Mitsui O.S.K. ended up 5.6% and Kawasaki Kisen closed up 0.4%.

Under the plan, Japan's largest shipper in terms of revenue, Nippon Yusen, will hold a 38% stake in the joint venture, while second-largest Mitsui O.S.K. and third-biggest Kawasaki Kisen will each have a 31% stake.

Write to Alexander Martin at alexander.martin@wsj.com

(END) Dow Jones Newswires

October 31, 2016 04:25 ET (08:25 GMT)

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