New container line alliance may find it has 'too many cooks in its kitchen', suggests Drewry
“Alliances are only as stable as their member carriers,” was maritime consultant Drewry’s first comment on plans to ...
Shippers around the world are suspicious of the proposed P3 alliance. They argue that on east-west trades the three top-ranked container carriers will reduce competition by controlling too much capacity.
There are also concerns that the sheer size of the alliance will force weaker carriers out of business, cutting booking options for shippers and restricting the choice of destination ports.
Shippers of time-sensitive commodities are particularly nervous that using hub ports to accommodate the increased deployment of ultra-large containerships will extend transit times, subjecting their cargo to additional temperature variations and reducing its shelf life.
The P3 will, if approved, carry 45% of Asia-Europe trade; 43% on the transatlantic and 24% of the transpacific market – a dominance that is particularly making Asian Shippers’ Council (ASC) members nervous.
The China Shippers’ Association, Hong Kong Shippers’ Council and Sri Lankan Shippers’ Council are among many ASC members demanding that officials at the FMC-hosted Washington DC summit on December 17 get tough with the P3 partners.
A recent comment from the Hong Kong Shippers’ Council said: “If they have such a big market share, they will easily come up with very unfavourable freight charges; they may even demand double freight rates during the peak season.”
However, the pro-P3 lobby say its “operational efficiencies” and service improvements will benefit shippers, many of whom remain cynical that carriers will play fair when the supply/demand balance shifts back in their favour.
In fact, many shippers and forwarders defend a propensity to “carrier-hop”, arguing that they are obliged to take advantage of carriers when demand is weak to compensate for times when the scales tilt the other way.
For some shippers, the scars of spring 2010 are still visible. During this period, following the financial crisis and with 600 containerships in lay-up, carriers tore up contracts with major customers who would not accept massive overnight rate hikes as demand exceeded supply.
As freight agreements were cancelled with little or no notice, the dysfunctional contract system of the industry was just days from being aired in the high court, before a last-gasp settlement between the parties calmed things down.
Significantly, 2010 was the only year in the past five in which the container liner shipping industry made a cumulative net profit.
Now, with their vessel-sharing proposal, the P3 mega-carriers seem determined to ensure profitability is sustained in the years to come: but are there risks to shippers if the regulators give it the green light?
The mutual lack of trust between carriers and shippers is a dark cloud that will hang over the Washington summit next week and, if nothing else, looks likely to delay the end-of-Q2-14 targeted start-up of P3 operations.