Shipper groups are expressing reservations over the plan by the three largest container carriers — Maersk, MSC and CMA CGM — to form a P3 alliance to operate on the major east-west trade lanes.
“As an alliance, it is too big. With 255 vessels totaling 2.5 million TEU, the P3 will be dominant in the east-west trade — 42 percent of the Asia-Europe trade, 50 percent of the Asia-Mediterranean trade, and 24 percent on the transpacific trade,” the Asia Shippers Council (ASC) said in a statement.
“Such concentration of capacity is untenable,” said John Y. Lu, the chairman of the ASC. “We fear for the worst should the regulatory authorities give its approval.” He applauded plans by the U.S. Federal Maritime Commission for a summit meeting with regulators from Europe and China, saying that he understands it will take place “by mid-December,” an estimate he’s gleaned from press reports.
“The P3 is not a done deal — not by a mile — whatever the alliance may think,” Lu said. “The regulatory authorities are right to look long and hard at the details of the P3 Alliance.”
The National Industrial Transportation League, the largest shipper group in the U.S., said its members “have expressed their concern about the potential for competitive impact due to the size and operational scope of this VSA (vessel-sharing agreement).”
In a letter to the FMC, Bruce Carlton, the president of the NIT League, wrote, “At the same time, the league and its members fully understand that well-structured VSAs and other forms of carrier joint-operating agreements can result in greater efficiency, lower carrier operating costs and enhanced service offerings to shippers such as extended port ranges and more frequent sailings.
“With its global reach and relatively large market shares resulting from the combined operations of the three carriers,” Carlton continued, “the P3 Agreement represents a new level of cooperative behavior among competitors. Moreover, the creation of a ‘Network Center’ to coordinate and manage a large range of operational aspects of the P3 Agreement is unprecedented.”
Carlton said the “P3 Agreement clearly is designed to permit future agreements between the carriers on a wide variety of matters that have the strong potential to impact competition and the rates and services provided to shippers. These matters include, by way of example, vessel capacity (Art. 5.1(a)); ‘ports to be called, port rotation, itineraries, service speed, and all other aspects of the structure and scheduling of the services” (Art. 5.1(c)); ‘rules governing the time and place of phasing-in and phasing-out of tonnage’ (Art. 5.1(c)); and vessel utilization thresholds (Art. 5.1(d)); among many other issues. “
Carlton also explained the organization’s issue with the Network Center.
“A significant number of future decisions and actions of the Network Center remain undefined at this time and subject to a grant of broad authority to the management of the Network Center to establish decision-making processes and procedures,” he wrote. “Based on the substantial number of future decisions and agreements yet to be determined by the P3 carriers on a host of important matters, we would ask the commission to obtain additional information from the carriers on those issues that are most likely to impact competition, and the rates and services offered to shippers, and to ‘test’ each such element of the P3 Agreement under different scenarios to determine what if any impact on competition between the cooperating carriers may result.”
The Global Shippers’ Forum (GSF), which includes the NIT League as a member, also called for “careful scrutiny” of the P3 proposal and also highlighted concerns about the the London-based Network Center.
GSF Secretary General Chris Welsh said, “Our initial assessment raises concerns about how the P3 partners can compete because of the ‘commonality of costs,’ which gives strong grounds for assuming common pricing. The more the costs are common, the greater the need for the P3 partners to demonstrate how they are going to compete on price.
“The key question is,” he continued, “are the P3 carriers able to demonstrate that the items that they refer to in the FMC filing — sales and marketing, EDI, back office, paperwork and customs — sufficiently significant to allow competitive pricing?”
The ASC also expressed concern that the P3 will “accelerate the demise of smaller players.”
Lu added, “With fewer service providers, we can only imagine what effect this will have on freight rates and service levels.”
The ASC said if competitors attempt to match P3 by ordering bigger ships and expanding their fleets, “it would worsen the supply-demand imbalance, with all the negative implications. Rather than bring stability, we fear P3 will bring about more price wars and rates volatility.”
Cai Jia Xiang, convenor, Greater China Area and vice chairman of the China Shippers Association, said, “Businesses like certainty to allow us to plan ahead, but the shipping environment is anti-certainty. Already shippers have to put (up) with fluctuating freight rates, longer lead times and service cancellations.”
