From SCDigest's On-Target e-Magazine

- Jan. 28, 2014 -

Global Supply Chain News: Despite Fears from Some Shippers and Regulators, P3 and G6 Alliances Likely to Win Approval in the End

Industry Moving to Alliance Model, Chairman of US FMC Says; Approval to Come Late in 2014?

SCDigest Editorial Staff

The world's three largest container shipping lines - Denmark's Maersk Line, France's CMA CGM and Switzerland's Mediterranean Shipping Co. (MCS) - shocked the global logistics world last June by announcing a new alliance, now called P3, in which the carriers would share capacity (ships and ports) worldwide.

SCDigest Says: Although the price fixing investigation is in theory separate from the P3 approval process, it adds another dimension to the evaluation and is likely to push back the approval timeline. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

The move immediately triggered notes of concern from both shipper groups as well as government regulators worldwide, relative to reduced competition for ocean shipping as well as the impact on other markets that are connected to the container shipping industry. But while such concerns continue to exist, it appears the P3 alliance will be approve, though later than P3 had hoped for, and with some concessions required. Moves by the rival G6 network to bolster its offerings will also likely to be approved, a variety of sources are saying.

“Clearly, it appears the industry is moving towards an alliance model. It is something we look at," said Mario Cordero, chairman of the US Federal Maritime Commission, in a January interview with ShippingWatch.

Should the P3 network plan be largely approved, it will certainly change the face of global container shipping, an industry that has been plagued with over-capacity and challenging finances since the recession in 2008. Whether this will be good or bad for shippers is not yet clear.

P3 plans to actually operate as a separate company, with former Maersk executive Lars Jensen as its CEO. It is an operating company only, meaning it will do no sales or marketing, rather simply focus on effectively running the ships and the network.

The three P3 carriers will continue to fight aggressively for every box - but that container could now be moved on a different carrier's ship under the alliance. The hope is that boxes can be moved at lower cost and more efficiently in terms of service. By combining their volumes on a ship, the result should also be that more of the capacity of the new giant vessels that the carriers are bringing on-line, such as the Maersk Triple E's, can be utilized than it would be going it alone.

That operational structure was also designed to ease concerns of shippers and regulators relative competition.

Of the 2.6 million TEU to be deployed by the alliance, 1.1 million will be provided by Maersk, 900,000 by MSC, and 600,000 by CMA CGM. That 2.6 million TEU total represents just under 15% of the total global container fleet.

However, the P3 as planned would control an estimated 43% of Asia-to-Europe container shipping, 41% of the trans-Atlantic market and about 24% of the trans-Pacific market, making it clear why many shippers are concerned about its clout.

In late December, senior representatives from the US FMC, the European Union's Competition Commission and China's transport ministry met in Washington Tuesday to discuss P3's plans.

One of those officials later told the Wall Street Journal that "The regulators have determined that the P3 isn't a merger, but an alliance. This means that it will probably be approved, but it will include clauses to protect parties like cargo owners, fuel providers and smaller competitors from price fixing and unfair competition."

Fuel suppliers worry, for example, are worried they won't be able to separately negotiate fuel prices with the three vessel operators under the alliance structure. Smaller container shipping lines fear that they will not be able to compete against the power of the alliance and the resulting ability to better utilize the new giant megaships, reducing costs per container.

(Global Supply Chain Article Continued Below)