P3 will stir up the market
The winds of change are about to set in in the container shipping industry: the sector’s biggest carriers Maersk Line, MSC and CMA CGM want to coordinate their activities in a joint alliance from 2014 and thereby ensure better results.
The top three carriers in the container shipping sector – Maersk Line (Denmark), MSC (Switzerland) and CMA CGM (France) – sent a shock wave through the industry in mid-June when they announced that they were forming a long-term alliance (see ITJ Daily breaking news from 19 June 2013). Their new network, named P3, plans to provide 29 services operated by 255 vessels and the alliance will have an overall capacity of 2.6 million teu on the transatlantic, transpacific and Asia–Europe trade lanes. Maersk’s contribution will amount to 42%, MSC’s to 34% ad CMA CGM’s to 24%. The three companies hope that this decision will lead to immense cost savings due to enhanced economies of scale and more stabile freight rates. The new P3 network will end existing agreements pertaining to the exchange of ships and slots.
The plan is to launch the alliance from the second quarter of 2014. In advance of this, permission has to be obtained from the respective cartel authorities in Europe, the USA and China. In the EU the new alliance is governed by directive 823/2000. This states that when a company is part of a consortium it can be exempted from competition rules providing the market share of the consortium in each of the markets in which it operates is under 30% calculated by the volume of goods carried. Given the current situation P3 will have more than 40% of the nominal capacity of the world fleet at its disposal, but it will still compete with around 15 independent liner shipping companies on most routes. To forestall any objections from cartel authorities, the three lines have decided to establish an independent company, headquartered in London and with an office in Singapore, that will be dedicated to managing business processes alone and that will have nothing whatsoever to do with commercial matters. Maersk, MSC and CMA CGM want to continue acting as fully independent entities in those sectors.
A necessary evil
«The strong are most powerful alone,» according to Schiller’s Wilhelm Tell. However, with respect to container shipping the strong are likely to be the most powerful when they team up with other robust partners. This applies precisely to the planned P3 network, comprising the three industry giants Maersk Line, MSC and CMA CGM. By merging their capabilities the three carriers will have more than 40% of the market’s entire tonnage at their disposal. The alliance will bundle services, raise operational efficiency and stabilise the current volatile rate level. Other providers could benefit, so that the bottom line may prove to be positive for all lines as liner shipping urgently needs market stabilisation.
This is an optimistic appraisal. However, there is a bitter aftertaste: when the industry’s big three merge there will be even fewer distinguishing features between the offered services. This is less pleasant news for shippers. On top of that, P3 will be in a very powerful negotiating position, so terminal operators and customers will have to face a new set of parameters. Finally, the new alliance of three companies which, until now, set the greatest store on their independence and were not exactly said to be the best of friends, shows that the situation in the container shipping industry is even more serious than people have so far thought.
Antje Veregge, ITJ editor