Back to the drawing board
It was the biggest news in the container shipping business for a year.
The world’s three largest container shipping companies — Maersk, Mediterranean Shipping Co. and CMA CGM — announced in June 2013 that they would enter into a long-term vessel sharing agreement (VSA) on all three of the major east-west container trades—Asia-Europe, transpacific and transatlantic.
And this was not just any VSA— the three carriers announced plans to set up a central office in London that would oversee the operations of the ships in what they called the P3 Network.
To those concerned about the large amount of capacity the P3 would control, the three carriers said they would continue to compete with each other, and that the alliance would bring many benefits, such as enhancing the ability of the three to effectively use the new wave of ultra-large, cost-efficient containerships entering operation and giving their customers more frequent service between more port pairs.
While the planned alliance passed muster with both the U.S. Federal Maritime Commission and regulators in Europe, China’s Ministry of Commerce blocked the P3 in mid-June.
Opposition to the P3 was most intense in Asia and Europe, and shippers there hailed China’s decision.
“It is a very fair and wise decision, which will be a benefit not only for China’s carriers and shippers, but also for the other carriers and shippers in the world,” said Cai Jia Xiang of the China Shippers’ Association and vice chairman of the Asia Shippers’ Council.
CSA representatives told the anti-monopoly bureau of the Ministry of Commerce that they believed the “actual market operation share of the P3 members in China’s international container shipping market is probably more than 65 percent.” And they complained the P3 members and other liner carriers had united to impose what they believe are unreasonable and escalating terminal-handling charges that they claimed were costing Chinese shippers up to $20 billion per year.
The CSA chief added that his group was not opposed to all alliances, stating “big or small, so long as they don’t touch the bottom line of the competition laws, it is OK.”
John Lu, chairman of the Singapore National Shippers' Council, said “we were so disappointed when the watchdog of the U.S., followed by the EU, gave P3 the green to go ahead.” The MOFCOM decision was correct, he said, and predicted it would be a game-changer in the antitrust area.
Lu added “the decision is no doubt welcome by the shippers in the world, but it will also benefit all other stakeholders of the maritime industry,” including the liner industry.
Commentators noted the action by the Chinese against Western firms was unusual. MOFCOM blocked Coca-Cola’s attempt to purchase the Chinese juice maker Huiyuan in 2009, and required the mining and commodity companies Glencore and Xstrata to sell a copper mine in Peru before merging.
In an article with the provocative headline “China’s Big New Export: Regulation,” The Wall Street Journal said China required Google to continue to make its Android system free and available to all as a condition to approving its 2012 purchase of Motorola Mobility, and quoted attorneys who speculated Chinese regulators may become more active in blocking deals among Western companies.
The European Shippers Council noted the FMC had “coupled its green light given to P3 with strict conditions of control, unlike the EU, who had authorized P3 without condition. In the same perspective, ESC recalls that it does not approve the EU’s proposal to renew the block exemption regulation on technical cooperation, known as ‘consortia regulation.'”
Nils S. Andersen, chief executive officer of the A.P. Moller-Maersk Group, said the decision by Chinese regulators was “a surprise” as the P3 members “worked hard to address all the regulators’ concerns. The P3 Alliance would have enabled Maersk Line to make further reductions in cost and CO2 emissions, and not least improve its services to its customers with a more efficient vessel network. Nevertheless, I’m quite confident Maersk Line will accomplish those improvements anyway.”
Lars Jensen, chief executive officer and partner at the consulting firm SeaIntel, noted even without coming to fruition “P3 has already had genuine market impact,” because other carriers have reacted by expanding their cooperation.
“P3 was the trigger-point for G6 to further solidify their scope and formally file for the transpacific," he said. The G6 carriers — APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK, and OOCL — had formerly operated in the Asia-Europe and Asia-North American east coast trades, but have since expanded their cooperation to include the Asia-North American west coast and transatlantic trades.
Jensen said it was also likely the P3 spurred Evergreen to the CKYH alliance of COSCO, “K” Line, Yang Ming and Hanjin.
P3 carriers have been sharing slots on some strings for years, and Jensen said such cooperation could continue and, perhaps, expand “so you could potentially see not the full P3, but something that moves closer to it.”
Simon Heaney, senior manager of supply chain research at the London-based consultants Drewry, noted it was not immediately clear if the Chinese authorities are limiting alliances to a certain percentage of trade or if they will use some other criteria to give a thumbs up or down to alliances.
Esben Christensen, director of the maritime practice at AlixPartners, said it is not clear if the current alliance groupings of carriers is optimal.
As the P3 carriers return to the drawing board, it will be interesting to see whether existing alliances remain intact or the lines of carrier cooperation are redrawn yet again.
This column was published in the July 2014 issue of American Shipper.