Containership Alliance P3 Abandoned: Implications Analysed

By George Backwell
Tuesday, June 24, 2014
Number of East-West Weekly Container Services With and Without P3: Source: Drewry Maritime Research

So, Maersk, MSC and CMA CGM will not be allowed to form what would have been the largest mega-alliance in the shipping industry. But what are the implications, and what is likely to happen next? Drewry Martime Research consider these questions in their latest Container Insight Weekly.

China’s regulators have blocked the P3 mega-alliance between Maersk, MSC and CMA CGM on the grounds that it infringes the country’s competition laws between Asia and Europe, particularly with respect to the lines’ combined market share of 46.7%. The law enforcers appear to believe that the cost reductions gained by the P3 carriers would either have been offset by this unacceptably high risk of market concentration, or would not have been passed back to shippers satisfactorily.

The unexpected decision effectively inhibits the carriers’ ability to reduce costs by pooling assets and controlling over-capacity, but the news will be good for their competitors and ports, despite not stopping the three from working together in other areas.

Whatever they decide to do next, Maersk, MSC and CMA CGM will not be able to save the hundreds of millions of dollars a year envisaged through P3’s greater economies of scale, which explains why Maersk’s shares plummeted 8% just after China’s announcement, wiping $3.5bn off the company’s market value in a day.

Maersk and CMA CGM were certainly building in substantial cost savings over the next few years from a successful P3 launch. They had clearly indicated this to the financial community without putting a number on it, prompting analysts to build in billions of dollars of savings in their future forecasts. The three carriers will, consequently, be encouraged to go back to the drawing board and revisit their cost optimisation models, which will be a challenging task.

Although P3 would have been financially beneficial to its members, its withdrawal is not a complete disaster for them, so the market is probably overreacting. Maersk and CMA CGM are already industry unit cost and profit leaders without P3, and will continue to outperform others in this respect. MSC’s financial results are not published, so it is not possible to say if they are in the same position, but it is probably similar.

For carrier competitors, including the Chinese lines, the cancellation of P3 by China’s regulators removes the threat of a very powerful mega-alliance. But one still has to fear that the overall carrier industry will struggle to control capacity as well as it might have done had P3 been approved. For example, without P3, Maersk, MSC and CMA CGM will not be able to reduce their weekly Asia-North Europe services from 9 (deploying a fleet of 107 vessels averaging 11,950 teu) to 8, or their Asia/Mediterranean services from 6 (deploying a fleet of 65 vessels averaging 10,670 teu) to 5.

For shippers, it means that Maersk, MSC and CMA CGM will continue to provide separate services, so retain the same product differentiation. The carrier industry will remain fragmented and the prospect of dealing with just a few carriers (one each from each of the 3 mega-alliances) will not happen for now.

For ports and terminals, P3 was seen as both a risk and an opportunity. A risk because it is claimed that the alliance would have been able to leverage its huge volume to dominate commercial negotiations with terminals, even though it assured US regulators that terminal contracts would not be negotiated jointly. An opportunity, because new business could be won by those with the necessary resources.

So what happens now?
Firstly, as mentioned earlier, Maersk, MSC and CMA CGM will have to find new ways to reduce their operating costs.

Secondly, Maersk, MSC and CMA CGM will be allowed to continue their numerous existing bi-lateral and tri-lateral vessel-sharing agreements and slot-exchange agreements on the transpacific and Asia-Europe routes (as shown in the table, which exludes the Asia-Mexico services – AC1, AC2 and PEX2).

They might even be allowed to form a tri-lateral consortium in the Transpacific, as their current 20% market share of effective eastbound vessel capacity to the West Coast alone is well below the G6’s 34%. This would enable them to deploy surplus ULCVs from the Asia/Europe trade lane on the route, and cascade the displaced vessels into other services, which may well have been envisaged at the outset of P3.

Thirdly, because the US Federal Maritime Commission and the European Commission have not blocked the alliance, the three carriers could decide to implement joint services on the transatlantic route, as planned, even without a P3 global setup. As the Atlantic is such a low-volume route, merged operations in this trade would provide little consolation to the three carriers, however.

Fourthly, as filling the new 18,000 teu ships without the ability to pool assets and volumes will be much harder, other solutions will have to be found, including the greater use of pendulum services. Without this, the lines will find it difficult to achieve high utilisation rates, thus under-achieving the vessels’ economies of scale. This will be particularly challenging to Maersk between Asia and Northern Europe, and to MSC between Asia and the Mediterranean, due to their lack of partners.

In summary, Chinese regulators may have stopped the world’s three largest carriers from joining forces between Asia and Europe, but many other cost cutting measures are still available to them, even though their efficiency gains will be less.

Drewry's View
The cancellation of P3 will probably postpone the stabilisation of the over-supplied and unprofitable carrier industry, but the further development of mega-alliances will not stop here.

Source: Drewry Maritime Research

Maritime Reporter April 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

BIMCO Welcomes EU Decision on Migrants

BIMCO has stated today that it appreciates the new efforts by EU leaders to reduce increasing reliance on merchant shipping to rescue the growing numbers of

Long Beach, Los Angeles ports host forum to gather input

More than 100 cargo owners, trucking firm leaders, longshore labor, marine terminals and other goods movement industry representatives turned out Wednesday for

Arctic Nations to Fight Climate Change Despite Russia Tensions

The eight Arctic Council nations pledged on Friday to do more to combat climate change that is shrinking the vast frigid region, with countries trying to put

Contracts

Algoma Central Orders New Great Lakes Ships

Algoma Central Corporation announces $160 million investment in fleet expansion and fleet renewal   Algoma Central Corporation announced that it has acquired

Russia, France Close to Deal on Mistrals

Russia and France are close to reaching an agreement for Paris to cancel a frozen contract on the sale of Mistral helicopter carriers and reimburse Moscow, a Russian

Horizon's Hawaii Business Acquisition Cleared by DOJ

Horizon Lines, Inc. reported yesterday that, after a review by the Antitrust Division of the Department of Justice, Horizon's proposed sales transaction with The

Container Ships

Norwegian Car Carriers to Buy Two from Hyundai Samho

Oslo-listed Norwegian Car Carriers (NOCC) has signed a contract with Hyundai Samho Heavy Industries for the construction of two 6500 ceu Pure Car Truck Carrier (OCTCs).

APM Maasvlakte II Terminal Opens

APM Terminals Maasvlakte II held a ceremony  to celebrate the opening of the world’s most automated container terminal.   The  event that was attended by Dutch

Zim Offers Asia-US east coast service via Suez

Israeli liner carrier Zim Integrated Shipping Services is launching a new service between Asia and the U.S. East Coast via the Suez Canal at the end of May.   The

Logistics

Norwegian Car Carriers to Buy Two from Hyundai Samho

Oslo-listed Norwegian Car Carriers (NOCC) has signed a contract with Hyundai Samho Heavy Industries for the construction of two 6500 ceu Pure Car Truck Carrier (OCTCs).

APM Maasvlakte II Terminal Opens

APM Terminals Maasvlakte II held a ceremony  to celebrate the opening of the world’s most automated container terminal.   The  event that was attended by Dutch

Goliat FPSO in Norway

The Goliat FPSO was successfully floated off the heavy-lift vessel, Dockwise Vanguard, in the fjord outside Hammerfest, says Eni Norge    The Goliat platform has arrived in Hammerfest,

Consulting

Long Beach, Los Angeles ports host forum to gather input

More than 100 cargo owners, trucking firm leaders, longshore labor, marine terminals and other goods movement industry representatives turned out Wednesday for

Salvage and Wreck Removal Conference

HINODE Events and Services Pvt Ltd., have announced the 4th Annual Conference on Salvage and Wreck Removal in India to be held on Wednesday, July 8, 2015 at Visakhapatnam on India's East Coast.

Technip dividend FY 2014

At the Annual General Meeting, held today, Technip’s shareholders approved the proposed €2.00 per share dividend for the 2014 financial year and decided to offer

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Maritime Standards Navigation Ship Repair Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.3188 sec (3 req/sec)