P3 Network will operate 255 ships in 29 strings with 2.6 million TEUs of capacity.
By Chris Dupin
The three largest container shipping carriers — Maersk Line, Mediterranean Shipping Co. and CMA CGM — announced in mid-June they plan to establish a long-term operational alliance on East-West trades next year.
The “Big Three” carriers said their P3 Network would initially operate 255 ships in 29 strings with 2.6 million TEUs of capacity on three trade lanes: Asia-Europe, transpacific and transatlantic.
P3 vessels will be operated independently via a joint vessel-operating center, and the three lines said they will each operate fully independent sales, marketing and customer service functions.
The P3 carriers cooperate on some services today — all three together or bilaterally, but Vincent Clerc, chief trade and marketing officer for Maersk, said the announcement is a big extension.
“It’s a pretty significant surgery on the network,” he said.
Other carriers have formed similar alliances in recent years, in some cases to better compete with Maersk, MSC and CMA CGM: the Grand Alliance (GA) of Hapag-Lloyd, NYK, and OOCL; New World Alliance (NWA) of NOL, MOL, and Hyundai; G6 Alliance which combines the GA and NWA members; and the Green or CKYH Alliance of COSCO, “K” Line, Yang Ming, and Hanjin.
If the U.S. Federal Maritime Commission and regulators in Europe and Asia approve the deal “this will mean 13 of the top 20 lines are in a structured alliance on the main East-West trades, leaving UASC, Evergreen, CSCL and Zim out on a limb,” said Neil Dekker, head of container research at the London-based consultancy Drewry.
P3 will provide customers on the main trades with “attractive, stable services and our Triple-E vessels will be implemented in the network without adding to the overcapacity on Asia-Europe” and “our operations will get even more efficient and competitive,” Clerc said.
“Increased services available, extended direct port coverage and more efficient vessel routing will enhance our service offering to our customers and also deliver significant environmental benefits through substantially lower fuel consumption,” said Diego Aponte, vice president of MSC. Improvements to schedule reliability and reductions in port congestion are also expected.
BlueWater Reporting estimates that Maersk, MSC, and CMA CGM currently allocate on their existing services:
- 149,905 TEUs weekly in the trade from Asia to North Europe and the Med, 45 percent of the total of 333,068 TEUs allocated.
- 67,559 TEUs weekly in the trade from Asia to North America, 18.2 percent of the 370,462 TEUs allocated.
- 39,669 TEUs weekly in the trade from North Europe and the Med to North America, 43.1 percent of the 92,067 TEUs allocated.
Mark Cooper, director of research at the Consumer Federation of America, said if “three leading firms have a market share north of 40 percent and they enter into an agreement that has the possibility of reducing their incentive to compete or increasing their power over price, it is going to get the attention of regulators, whether it is a merger or a joint venture.”
Historically, however, alliances have not been viewed as anticompetitive.
While he said his organization will have to see the details of the agreement, Peter Gatti, executive vice president of the National Industrial Transportation League, said “vessel-sharing agreements such as this can be efficiency-enhancing. Hopefully some of that efficiency will be translated into results for their customers.”
The three carriers hope to begin operation of P3 in the second quarter of 2014, subject to approval of the FMC and regulators in Europe and Asia.
Mario Cordero, chairman of the FMC, told American Shipper once the three carriers file an agreement for the P3, it will be scrutinized by the staff and “at some point the commission will weigh in.
“Our concern is that it does not result in unreasonable increase in rates or unreasonable decrease in service,” he explained. Some specific items that would be considered are whether the alliance is positive or negative for port coverage, sailings, capacity, and transit times. Cordero also noted bigger ships could be positive for the environment.
Clerc said the weekly carrying capacity being offered by the three carriers will be about the same as today, though slightly more in the transpacific where they expect some growth, or in the low single digits, next year. He said it will be marginally less, by 1 or 2 percent, on the Asia-Europe trade.
Dekker said the initiative “will help reduce carrier costs and stabilize the market.”
Noting “there are still more than 15 competing carriers on most trade routes,” he said, P3 “will not damage competition. But, it will contribute to the trend towards lack of differentiation of services in container shipping which is something that will continue to worry shippers.
“On the positive side, the formation of a bigger alliance should make it easier to adjust capacity up or down as demand changes, instead of through large lumpy additions or deletions of whole loops,” Dekker added.
Maersk’s biggest ships, including the Emma Maersk-class and the 18,000-TEU Mærsk Mc-Kinney Møller and its sister “Triple E” ships, will be part of the P3 cooperation, as well as CMA-CGM’s 16,000-TEU Marco Polo-class vessels.
Clerc said while Maersk had originally planned to operate the Triple E vessels on its own, the carrier has known for about six months it would likely use them in a joint service. After comparing the two alternatives, he said the company found it is more effective to use the ships jointly because it can use fewer ports.
The combined trade of the three carriers on the “big trunk corridors of the trade represent a much larger share,” he explained. “You can just capture that cargo and let the other strings go to the other ports. It is not going to trigger a heavier reliance on feeders or transshipment.”
Clerc said lack of growth on East-West routes puts pressure on the lines to find ways to lower their costs.
By combining, they will be able to offer more weekly sailings in their combined network than they do individually. As an example, P3 plans to offer eight weekly sailings between Asia and Northern Europe. In addition, the alliance will offer more direct ports of call.
Maersk also said the improved network is expected to reduce disruptions for customers caused by cancelled sailings.
Maersk would contribute ships with 1.1 million TEUs, or 42 percent, of the P3 Alliance capacity; MSC about 900,000 TEUs, or 34 percent, of capacity; and CMA CGM about 600,000 TEUs, or 24 percent, of capacity.
