Alliance of top three shipping lines could start in mid-2014: Maersk

Monday, 24 March 2014 00:39 - - {{hitsCtrl.values.hits}}

‘P3’ alliance between Maersk, MSC and CMA CGM Tie-up wins approval from US regulators Critics fear it could dominate key shipping routes Alliance needs green light from Europe, China regulators COPENHAGEN (Reuters): An alliance of the world’s top three container shipping firms which could control more than a third of the market is likely to start operating in mid-2014, No. 1 player Maersk Line said after the tie-up was approved by US regulators. The industry has been battling overcapacity since the financial crisis because new vessels ordered before the downturn has flooded the market. This has driven rates on the main route between Asia and northern Europe to loss-making levels. The proposed alliance is between Maersk Line, a unit of A.P. Moller-Maersk, Switzerland-based MSC Mediterranean Shipping Company and France’s CMA CGM. To cut costs, they have agreed to pool about 250 ships which will operate on three trade routes: Asia-Europe, trans-Pacific and trans-Atlantic. This would allow the firms, which currently run many of their vessels only partly laden to run larger ships – which are more fuel efficient – fully loaded.

FMC imposes reporting requirements on ‘Unique’ P3 agreement

The Global Shippers Forum (GSF) has extended its thanks to the Federal Maritime Commission (FMC) for its thoughtful examination into the P3 Global Alliance Agreement in accordance with its remit under the US Shipping Act of 1984 and the Ocean Shipping Reform Act of 1998. GSF stated that the US regulatory framework provides anti-trust immunity for ocean liner carriers to discuss prices, costs, and capacity arrangements in a regulated environment under agreements filed with the FMC. GSF Secretary General Chris Welsh said: “GSF members understand and appreciate the benefits that can flow from vessel sharing agreements. In light of this, we warmly welcome the fact that the FMC has listened to the GSF and taken on board our specific concerns regarding the potential for unreasonable costs or rate rises. We also welcome the fact that the FMC is to implement alternative reporting requirements in its ‘on-going close monitoring of the Agreement’.” In November 2013, the GSF summarised the concerns of many shippers by requesting the FMC fully examine the potential impact of the P3 on prices, services and service quality to ensure that the unprecedented market power of the P3 did not afford the parties the opportunity to impose unreasonable increases in transportation costs or unreasonable reductions in transportation services impacting shippers. On 5 December, 2013 the FMC slowed implementation of the P3 Alliance Agreement pending further analysis based on questions raised by the GSF and other shipper interests. Welsh added: “GSF further appreciates that the ‘new reporting requirements’ have been specifically tailored to the P3’s ‘unique authority’ to ensure that relevant information is provided to ensure that the FMC can act quickly in the event of abuses or unreasonable increases in transportation rates and costs or reductions in transportation services.” The GSF said that it was appreciative of the thorough analysis undertaken by the FMC. In particular, GSF has warmly welcomed the institution of specific monitoring program to ensure that the P3 parties “play by the rules”. We also welcome the safeguards drafted into the P3 agreement to ensure that the P3 Parties negotiate independently and enter into separate contracts with third parties. Welsh stated: “This is exactly what the GSF sought under the FMC’s regulatory authority. We will offer our observations to the FMC to discuss the arrangements over the implementation of monitoring arrangements and how GSF can assist this on-going process.” Attention now turns to Brussels where the GSF has recently submitted a new legal brief, framed by the EU’s guidelines on competition. Welsh concluded: “The GSF is similarly hopeful that the European competition authorities will fully examine the P3 under the EU competition guidelines and makes appropriate changes to the P3 as required by EU law.”

The grouping has been criticised by cargo owners and shippers’ groups because of fears it could dominate the key routes, pushing out smaller carriers and potentially driving up prices. The so-called P3 alliance will have more than 40% of Asia-Europe and trans-Atlantic trade and 24% of the trans-Pacific market, according to industry estimates. The approval from the US Federal Maritime Commission (FMC) takes effect from Monday but will apply only to routes to and from US ports. The alliance still needs approval from Chinese and European regulators before it can become fully effective. Maersk Line said it expected to receive Chinese and EU approval before the middle of this year. “We expect that the P3 can be started mid-2014,” it said.

However, a spokesman for Joaquin Almunia, the European Competition Commissioner said the EU was still assessing the proposed alliance because it would exceed the 30% market share allowed for shipping consortia. He could not give an indication of when a decision would be made. “North America and the US in particular is a key shipping market. Therefore, the decision by the FMC is a very important step towards overall approval of P3,” a Maersk spokesman said. Central hub With a global market share of around 15%, Maersk Line is the world’s biggest container shipping company, while MSC with around 13% and CMA CGM with around 8% are number two and three respectively. The three shipping firms plan to commit all vessels deployed on the three routes into a joint vessel operation centre located in London that will operate the combined fleet independently. The US Shippers Association says the aim of the tie-up is to drive out weaker carriers and increase market share. “In the case of the trans-Atlantic, it is a short step to the 50% mark and beyond, where the P3 would have a controlling share of the market, which would be a very dangerous and detrimental situation,” it wrote to the FMC last year. “It is just a matter of a short time before the P3 controls the trans-Atlantic market,” it said. Analysts from investment bank Alm. Brand Markets forecast the tie-up could lower Maersk Line’s costs by up to 6%. The lower costs would mainly be driven by bigger and more energy efficiency vessels, they said. Maersk has ordered 20 super-size vessels from South Korea’s Daewoo Shipbuilding & Marine Engineering. Four of them were put into service on the busy route between Asia and Europe last year, helping to lower costs per unit. An additional 16 of the Triple-E class vessels are scheduled for delivery during 2014-2015. Lars Jensen from maritime analysis company SeaIntel said the alliance operating with larger vessels and maximising utilisation would result in significant improvements in their unit costs compared with their competitors. He estimates the alliance will operate with vessels that on average are 2.000-3.000 TEU (20-foot equivalent unit containers) bigger than competitors.