Against the odds: Salmon, barbecues & Maersk deal-making
The spectrum of what’s discretionary and truly necessary inexorably narrows.
The latest development in the consolidation of the liner shipping sector was announced this morning with the news that the three largest box carriers are to develop a new operational alliance covering the three major east-west trades.
Maersk, CMA CGM and Mediterranean Shipping Co unveiled plans to develop the P3 Network, covering the Asia-Europe, transpacific and transatlantic routes, with a scheduled launch in the second quarter of next year, if its formation is given the green light by regulatory authorities in Asia, the EU and the US.
Although there have been questions as to whether an alliance that is, for example, expected to control some 40% of total Asia-Europe cellular capacity, will pass monopoly tests, it is also doubtful whether the carriers would even get to the stage of announcing their plans without significant confidence they will win approval.
For regulators, the key factor will revolve around the three carriers’ plans to establish a Joint Vessel Operations Centre to oversee the deployment of 255 ships across 29 routes, equating to a total capacity of 2.6m teu.
In a circular to customers, seen by The Loadstar, Maersk wrote: “A unique feature of the P3 will be its Joint Vessel Operating Centre (JVOC), developed to ensure you receive the most value from the product offering.
“The JVOC will manage the P3 network independent of the carriers, meaning you get one product run by one team. This provides you with the consistency and stability you look for when selecting your ocean carrier.”
Other functions, such as sales and marketing, will remain distinct, although inevitably the question will once again be raised as to how the three carriers will be able to differentiate from each other. Maersk said it would “continue to offer the Daily Maersk product to those customers requesting it”.
However, the overriding motivation for the project appears to be the need to control capacity in the face of continually weak freight rates, whilst also maintaining adequate service levels.
“Declining volume growth and overcapacity in recent years have underlined the need to improve operations and efficiency in the industry. This has prompted the creation of other operational alliances such as G6 and CKYH. Using the P3 Network the lines expect to be able to improve their efficiency through better utilisation of vessel capacity,” Maersk said in a statement.
Drewry Maritime Research, which has consistently highlighted the industry’s inability to meaningfully control capacity – and the subsequent pricing indiscipline – as the single most important reason for so many carriers reporting heavy financial losses, believed the move would lead to a more stable market, and would be unlikely to fall foul of competition law.
“The news of the P3 service network initiative, to be implemented by Maersk, CMA CGM and MSC, must be considered as a welcome one for the industry since it will help reduce carrier costs and stabilise the market.
“There are still more than 15 competing carriers on most trade routes and the combination of Maersk/MSC/CMA CGM in an operating alliance 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.”
It added in its analysis that the creation of a new alliance would also allow capacity to be controlled in a more flexible way. “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. Should the new initiative be fully approved by the regulatory authorities, 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.”
According to this morning’s announcement, Maersk will provide 42% of the alliance capacity, including its new Triple-E ships, totalling 1.1m teu capacity; MSC will contribute approximately 34% of capacity, or around 900,000 teu; and CMA CGM will contribute the remaining 24% capacity, or 600,000teu.
Although full service details have yet to be finalised, and the contracts between the carriers themselves yet to be signed, Maersk said the Asia-North Europe offering is expected to comprise eight weekly sailings with extended port coverage.
“Potentially, it also solves the problem for Maersk of how to best deploy its remaining eight Triple-Es – by presumably combining with CMA CGM’s 16,000 teu vessels,” Drewry added.