A plan by the world’s three largest container shipping companies —
Maersk, MSC and CMA CGM — to form the P3 Network, a massive
vessel-sharing alliance, is not moving forward following a decision by
China’s Ministry of Commerce (MOFCOM) on Tuesday not to approve the
Maersk said MOFCOM’s decision follows a review under China's merger-control rules.
“The P3 partners take note of and respect MOFCOM’s decision,” the
Danish carrier said. “Subsequently, the partners have agreed to stop the
preparatory work on the P3 Network, and the P3 Network as initially
planned will not come into existence.”
While no explanation of the
decision was immediately posted on the English language section of the
MOFCOM, the website ChannelNewsAsia reported the ministry said the P3 Alliance would “have a far-reaching impact on the global shipping industry and cause a high level of concern in all sectors"
because the P3 carriers would increase their "combined capacity in
container shipping on Asia-Europe routes" and give them a "substantial
increase in market concentration."
“In Maersk Line, we have worked
hard to address the Chinese questions and concerns. So, of course, it
is a disappointment. P3 would have provided Maersk Line with a more
efficient network and our customers with a better product. We are
committed to continuing to be cost competitive and offer reliable
services,” said Vincent Clerc, Maersk Line’s chief trade and marketing
He said no one at Maersk, or from Maersk that was being
assigned to the joint operations center that the P3 carriers were
setting up in London, will lose their jobs, but will be offered other
positions at the company.
Nils S. Andersen, the chief executive
officer of the A.P. Moller-Maersk Group, said, “The decision does come
as a surprise to us, of course, as the partners have 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.
"It has delivered on those
improvements over the last five quarters in the absence of P3, and I’m
confident it will continue to do so."
Shares of A.P. Moller-Maersk
tumbled on the news of the denial, but the company said “implementing
the P3 Network will have no material impact on the Maersk Group’s
expected result for 2014.”
Plans to form the P3 Network, a
long-term operational vessel-sharing agreement on the major East–West
trades, was first announced just more than a year ago, on June 13, 2013.
Maersk said the overall aim with P3 was to make container liner
shipping more efficient and improve service quality for the shippers due
to more frequent and reliable services.
The denial by the Chinese is in contrast to actions by U.S. and European regulators.
On March 24, the U.S. Federal Maritime Commission decided to allow the
P3 Network agreement to become effective in the U.S., and on June 3, the
European Commission informed the P3 partners that it had decided not to
open an antitrust investigation into P3 and had closed its file.
The P3 was scheduled to start operations in the autumn of 2014.
Lars Jensen, chief executive officer and partner at the consulting firm
SeaIntel, said that the denial was clearly a surprise to the carriers
given that they had already begun to reassign personnel based on an
expectation that the alliance would start up this fall.
already had genuine market impact even if it is never going to come to
fruition,” said Jensen, noting that other carriers had reacted to it by
expanding their cooperation. “P3 was the trigger point for G6 to further
solidify their scope and formally file for the transpacific." The G6
carriers — APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK OOCL —
had formerly operated in the Asia-Europe and Asia-East Coast North
America trades, but have since expanded their cooperation to include the
Asia-North America West Coast and transatlantic trades.
said the P3 likely also was a spurt to Evergreen joining with the CKYH
alliance of Cosco, “K” Line, Yang Ming and Hanjin.
to the reasoning behind the P3 decision, he said it was impossible to
know if the Chinese decision would have any impact on the G6 or CKYHE
“I guess I'm only moderately surprised,” said Bruce
Carlton, chief executive officer of the National Industrial
Transportation League, the largest group representing shippers in the
He said he expected the FMC and the European Union
competition authorities to “green flag” the agreement, noting that in
the U.S. “the bar is set very high” for the FMC to deny a space sharing
agreement and that they would have to go to court to block it.
think, in the end, it's unfortunate,” said Carlton. “Certainly our
concerns were satisfied by the FMC. League members probably had a
diversity of views, but we told the FMC that the League has always been
supportive of vessel-sharing agreements, but because of the
unprecedented size of the P3, the FMC should closely monitor its
operation for any signs of less-than-full competition. And that's what
they said they would do. We were very pleased with the FMC decision.
They did a good job.
"Now we're not going to know what benefits might have flowed to shippers from the P3,” he added.
The European Shippers Council said, “Without detail on which legal
ground the Chinese authority have based their decision, the ESC
understands this decision since it has already expressed its concern
about the risk of dominant situation created by an alliance that could
represent 44 percent of market shares for trades between China and
Europe. This danger had also been evoked by the U.S Federal Maritime
Committee, who 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.'”
ESC noted that it
had “voiced concerns about the so-called P3 alliance earlier. On the
transatlantic trades, the P3 Network would, for example, have a market
share of 44 percent. According to the ESC, the free choice of shippers
should be and remain the highest priority. Individual shipping lines
have to distinguish on price, service levels and routing.”
Jensen said that the P3 carriers had already been collaborating, at some level, for years.
“Those (agreements) continue unchanged, and if they genuinely do want
to expand how much they work together, there is not much to prevent them
from doing more vessel-sharing agreements. So you could potentially see
not the full P3, but something that moves closer to it,” he said,
noting that would that would be without the joint operations center in
London, which means the potential efficiency would also be reduced. “It does force everybody to rethink what does this mean to the future of the industry,” said Jensen.
Simon Heaney, senior manager of supply chain research at the London-based consultants Drewry, said the P3 denial “begs a few questions” given that the G6 alliance has been allowed to expand. Without further information from Chinese authorities it is not clear if they are limiting alliances to a certain percentage of trade that members of any one alliance can carry, he said.
Heaney added that Drewry had viewed the P3 as a positive for both the container shipping industry and the individual carriers due to the economies of scale and the extra cost savings it would have generated for them, as well as the fact that it gave carriers the ability to pare back on capital expenditures by not having to buy large new ships individually.
The fact that the P3 Network will not move forward “is a negative for all three carriers especially considering the time, effort and resources they put into making this happen, and the fact that they will now need to revisit their plans for network strategies, investment strategies — all these things are going to have a negative impact on them.”
The plunge in Maersk shares was “a bit of an overreaction” he said. He noted that both Maersk and CMA CGM were both cost and profit leaders last year without the P3, “so whilst it is not positive that P3 is not going ahead, it’s not a complete train wreck for them. They will still outperform the market, but to a lesser extent than if you might have expected if P3 had allow to go ahead.
"It just means those projections that analysts have been making for those future cost savings will be much lower. There are efficiency gains that they were expecting in the future are not going to materialize to the same extent without the P3.”
MSC said it will continue to review all remaining options as to how it can continue to become more cost efficient and improve its service offering in the absence of P3.
“We are disappointed by the decision of the Chinese Ministry of Commerce, but will continue our efforts to operate more efficiently and provide our clients with a comprehensive and excellent service,” said Diego Aponte, the carrier’s vice president.
“We could have achieved these efficiencies much faster through P3 but with our investment in more fuel efficient vessels, further economies of scale will still be achieved over a period of time,” he continued.