The wave of consolidation continues in the container carrier industry, as Japan’s Nippon Yusen, Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha have combined liner operations in an effort to consolidate economic resources and improve efficiency.

In a released statement, the companies said that “by strengthening the global organization and enhancing the liner network, the new joint-venture company aims to provide higher quality and more competitive services in order to exceed our clients’ expectations”.

The merger now comprises the world’s sixth largest container shipping operation by capacity, with 256 container vessels and about seven percent of the world shipping market. It will begin operations in April 2018.

Why is this happening? The answer, as it so often is with any question related to business, is money. The three lines anticipate an annual savings of $1.1 billion through their newfound synergy. Since 2012, Nippon Yusen, Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha have collectively lost $1.5 billion.

Beginning of a New Wave?

Analysts suggest that this merger is the first of a second wave of consolidation, given the continued lethargic state of the industry. Overcapacity and a struggling global economy has convinced carrier companies that there is safety in numbers—a lesson that may have been learned too late by those such as South Korea’s Hanjin.

Will companies such as OOCL, Yang Ming, Hamburg Sud, and Zim begin looking for partners? As the gap widens between the new, larger consolidated entities and the medium-sized firms struggling to hang on, further acquisitions may become inevitable.

But even if more mergers take place, the industry may still be facing tough times, at least according to a report issued by the Boston Consulting Group (BCG).

Following moderate growth from 2010-2014, the 2015 drop in demand resulted in overcapacity that paved the way for mergers such as that of China’s COSCO and CSCL, CMA CGM of France and APL parent Neptune Orient Lines, and THE Alliance.

By reshuffling the industry deck, BCG analysts now predict an uptick in container demand between 2.2 percent and 3.8 percent through the year 2020. However, the gap between global trade volumes and containership capacity may increase to between 8.2 percent percent and 13.8 percent during the same period.

“By the end of 2020, oversupply in vessel capacity will stand at two-million to 3.3 million TEUs—equivalent to some 90 to 150 or more Triple E class ultra-large container vessels,” the report reads. “The year 2016 seems ready to set a new record for a reduction in capacity: seven months of scrapping (January through July) affected roughly 300,000 TEUs, and the age of vessels at their scrapping—20 years—dropped to a two-decade low. However, it’s uncertain how much more reduction is to come. Industry players are in a race for lower slot costs to ensure competitive advantage. The bigger, newer, and more efficient the vessel, the lower the slot cost, which is why companies want to invest in larger vessels.”

As a result, the industry faces projected combined losses of $10 billion, with continued overcapacity making it difficult—if not impossible—for every line to turn a profit. Even worse, companies are left to wonder if this is merely a prolonged downward trend, or the new normal.