Questions about new Maersk-MSC Alliance
It may not be a slam dunk.
While the proposed “2M” vessel sharing agreement that Maersk Line and Mediterranean Shipping Co. announced on Thursday is significantly smaller than the P3 Network announced last year, which was also going to include CMA CGM, the companies could still face opposition to the new alliance.
While the two companies also removed a feature highlighted by China’s Ministry of Trade when it rejected plans for the P3 Network — the creation of a joint operations center — that may not be enough to satisfy opponents.
The China Shippers’ Association was outspoken in its opposition to the P3, and its vice president, Cai Jia-Xiang, told American Shipper on Friday that according to China’s international maritime regulation, the maximum market share a company or alliance can have is 30 percent.
“We don’t care if it is P3 or P2. It’s not how strong or big they are, so long as they touch the bottom line of the 30 percent limit,” he said.
Cai said regulators in China need better statistics on the market share of carriers in China, but said he believes the combined share of Maersk and MSC is above the 30-percent limit in the China-Europe trade.
Meanwhile, the European Shippers’ Council said, “This type of vessel-sharing agreement is less worrying for shippers than the planned P3. Indeed, previous cooperation was more integrated and has huge market share on all concerned trades. However, even with only Maersk and MSC, the carriers reach around 35 percent of market shares between Asia and Europe, which is still very important and can cause some wonderings."
It continued, “As far as the European Shippers' Council is concerned, this threshold is enough to require some railing from competition authorities. The ones proposed by the FMC for the P3 would be sufficient to reassure shippers in some aspects. Focus should clearly be put on the monitoring of capacity modification and its impact on rates."
Lars Jensen, chief executive officer and partner at SeaIntel Maritime Analysis, noted the Chinese saw the P3 as a de-facto merger and a deal that would have given the three carriers a lot of market power.
He thought the new deal would be “no different from any other VSA in the world. It would be extremely odd if they are not allowed to go ahead with that one.”
Because Maersk and MSC are going to get out of existing VSAs, he said the deal leaves CMA CGM with a challenge. He suggested they may collaborate with both China Shipping and United Arab Shipping.
He said with its proposed operations center the P3 was going to be “a network designed and operated by Maersk, so that when it came to timeliness and reliability that would benefit all the customers.” Jensen pointed out that the new arrangement where Maersk and MSC will be responsible for the operation of their own vessels will be a “different kettle of fish — MSC does not have the track record on reliability that Maersk does.”
From a customer perspective, he said, “unless MSC changes the way it operates vessels, Marsk will experience a decline in reliability.”
The London-based shipping consultant and research company Drewry has measured on-time performance of carriers in a sampling of ports around the world since 2012. It found on all trade lanes over that period, Maersk’s on-time performance has ranged from 90.8 percent to 69.8 percent, while MSC’s has ranged from 48.2 percent to 65.1. It counts a vessel as on time if it berths within 24 hours of its estimated time of arrival.
Jensen notes the differing performance of carriers is a common problem, and that shippers who have cargo that is particularly time sensitive will track which company is operating which vessels in an alliance and keep cargo off the ships of a poor performer. In a mixed string, they may even avoid moving freight on the weeks when a poor-performing carrier is operating a vessel.
Dirk Visser, senior shipping consultant and managing editor for DynaLiners at Dynamar, said, “I assume a very, very tough agreement will have been made” on how to control performance. “Maersk will not be able to guarantee Daily Maresk if they are not able to get the same service integrity that they operate with.”
“MSC must have offered security” that they would offer a high level of service integrity, he said, adding, “They have every reason to give in since I think they were the company most hurt by the Chinese decision [to reject the P3]." Visser said they need a VSA partner because of the amount of ships carrying more than 10,000 TEU they have in their stable.
Like Jensen, he thought China Shipping and United Arab Shipping might be potential VSA partners with CMA CGM since all the carriers have large ships and more large ships on order that would mesh well.
Neil Dekker, head of research-containers at Drewry said the exclusion of CMA CGM from the new agreement is “not particularly negative for CMA CGM. They have a lot of big ships already on the East-West routes, so on an economy-of-scale perspective, they are able to operate a number of routes on those trades that will give them low slot costs."
He noted the company is particularly well equipped for service from Asia to the Mediterranean, having just last week taken delivery of the first in a series of 28 ships with 9,400 TEU that are specifically designed so that they can also be used in the Black Sea, but which will also be attractive for use in Mediterranean ports.