If at first you don’t succeed…
On the heels of the decision in June by China’s Ministry of Commerce to reject the plan by the world's three largest liner carriers to form the P3 Network, two of the three—Maersk Line and Mediterranean Shipping Co.—said in July they have agreed to enter a 10-year vessel-sharing agreement (VSA) on the Asia-Europe, transatlantic and transpacific trades.
CMA CGM, the other proposed partner in the P3, will not be in the new VSA.
Maersk said the VSA, which the carriers are calling 2M, “replaces all existing VSAs and slot-purchase agreements that Maersk has in these trades.”
MSC said something very similar, but not quite the same—stating the VSA “will replace all current VSAs and slot-purchase agreements that MSC has with Maersk Line on these trades.” It was not clear if the difference in wording was significant, if MSC was leaving open the possibility of VSAs and slot-purchase agreements with carriers other than Maersk.
A major difference between 2M and P3 is the new VSA does not have the joint vessel operating center that the P3 members said would operate the 255 ships in their planned network. That London-based network was to have been based in London and headed by a Maersk executive named Lars Michael Jensen.
The European Union’s competition directorate and the U.S. Federal Maritime Commission decided not to try to block P3.
However, Richard Lidinsky, unlike the other four FMC commissioners, voted to disapprove of his agency’s staff recommendation that the agreement be allowed to move forward. He said the proposed P3 was “in reality not an alliance or true vessel-sharing arrangement. Rather, it is in effect a merger of the top three global liner companies.”
Brad Lui and Lei Oouyang of the law firm Morrison Foerster in a client alert wrote “MOFCOM’s decision appears to highlight a significant difference in the competition laws of the U.S., EU and China. Unlike the competition laws of the U.S. and the EU, China’s Anti-Monopoly Law requires MOFCOM not only to assess the potential competitive effects of a proposed transaction but also the transaction’s potential impact on China’s ‘national economic development.’
“In the case of the P3 alliance, it seems that industrial policy factors may have had a role in MOFCOM’s decision to block the transaction,” they added. Projected cost reductions by the P3 carriers “were so significant that they may have raised industrial policy concerns at MOFCOM. In the wake of the announcement of the P3 alliance, a number of ocean shipping companies, including major Chinese shipping firms, lodged complaints against the proposed alliance. There were significant concerns expressed that the P3 alliance members would enjoy such a significant cost advantage that it would be difficult for other companies, including major Chinese shipping lines, to compete,” the attorneys said.
Various Asian shippers’ organizations, namely the Chinese Shippers’ Association, Hong Kong Shippers’ Association, and Singapore National Shippers' Council, applauded MOFCOM’s decision.
“Such concentration of capacity is untenable," said John Lu, chairman of the Singapore group.
Michael Storgaard, a Maersk spokesman, said his company believes the new 2M with MSC will create an alliance with about a 30 percent market share in the Asia-Europe trade. He said the company was not disclosing an estimated market share out of China.
MOFCOM had estimated the capacity shares of the Maersk, MSC, and CMA CGM at 20.6, 15.2 and 10.9 percent, respectively, when it had reviewed the P3.
Cai Jia-Xiang, vice president of the Chinese Shippers’ Association, contended according to China’s international maritime regulation the maximum market share a company or alliance can have is 30 percent and 2M would exceed that. “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.
Storgaard said the 2M VSA will be filed with China’s Ministry of Transport, not MOFCOM. “This is a pure VSA, and VSAs of this type are only filed with the MOT,” he said.
It’s unclear at this point whether the absence of CMA CGM, smaller market share, or lack of an operations center will placate Chinese regulators.
Maersk and MSC look like comic strip characters Mutt and Jeff when it comes to service reliability, according to the shipping consultants Drewry, which 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 65.1 to 48.2 percent. Drewry counts a vessel as on time if it berths within 24 hours of its estimated time of arrival.
Lars Jensen of SeaIntel noted P3 was going to have “a network designed and operated by Maersk, so that when it came to timeliness and reliability that would benefit all the customers,”
2M, in which Maersk and MSC will be responsible for the operation of their own vessels, will be a “different kettle of fish. Unless MSC changes the way it operates vessels, Maersk will experience a decline in reliability.”
Dirk Visser, senior shipping consultant at Dynamar, believes “a very, very tough agreement will have been made” between the two companies on how to control performance. “Maersk will not be able to guarantee Daily Maersk if they are not able to get the same service integrity that they operate with,” he said. MSC “has every reason” to accede to Maersk’s demands as it is the company that most needs a VSA partner, because it has so many large ships in its fleet or on order that need to be filled.
The odd line out? Jensen and Visser both thought China Shipping and United Arab Shipping might be potential VSA partners with CMA CGM, since all three carriers have large ships that would mesh well in an alliance.
This column was published in the August 2014 issue of American Shipper.