TPM 24: To hub-and-spoke, or not to hub-and-spoke? That is the question
The question of rates and annual contracts – and the effects of the Red Sea ...
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By Mike Wackett
The end of plans for the P3 Network, forced by the Chinese Ministry of Commerce (MofCom), has shaken the container liner industry.
Most players, including shippers, had assumed that after clearing regulatory hurdles in the US and Europe, the world’s three biggest container lines would get the green light in Asia.
However, MofCom’s refusal gave Maersk Line, MSC and CMA CGM no right of appeal, obliging them to abandon plans for the vessel-sharing agreement.
A year of planning, conservatively estimated to have cost $100m, will be archived and the three carriers are left to pick up the pieces.
The first casualty of the aborted alliance will be its headquarters, the P3 Network Centre, led by ex-Maersk executive Lars Michael Jensen. It is understood that there were advanced plans to lease a building in the vicinity of London’s Gatwick Airport capable of accommodating the 200 operational staff that were in the process of being recruited.
Mr Jensen’s task was to merge the cultural differences of the three carriers and to optimise scheduling, regardless of the potentially different opinions and vested interests of the P3 members.
Elsewhere, the container ports selected for the 250-vessel east-west P3 Network, and the terminals where agreements have been signed, will be digesting the news and considering the fallout from the abortive VSA.
The carriers are putting on a brave face, talking of their “disappointment” at the decision by MofCom, summed up by a comment from MSC’s vice-president Diego Aponte on the efficiencies the P3 would have generated: “We could have achieved these efficiencies much faster through P3, but with our investment in more fuel-efficient vessels, further economies of scale will still be achieved over a period of time.”
Maersk parent APMM’s share price plunged 8% with the news, as analysts had already factored-in a possible $1.5bn of extra cost savings a year for the line’s container business. However, such is the profitability gap that Maersk has built between itself and the majority of its competitors, that this dip will no doubt be temporary.
China’s decision could also be good news for containership owners, as the vessel rationalisation would have resulted in a number of charter ships being off-hired. Drewry Maritime Research’s Neil Dekker said the rejection of the P3 could lead to “bigger ships being in greater demand”.
He added: “As a result, it may well be that charter rates go up.”
But it is shippers that seem to be throwing their hats up in the air today as, one by one, shippers’ councils welcomed the rejection of the P3 Network by Chinese regulators.
Global Shippers’ Forum secretary general Chris Welsh said: “The unprecedented size and scale that the proposed P3 global alliance was going to pose competition regulators was a concern to the GSF.
“We had welcomed recent monitoring arrangements for the proposals, but the P3 appears to have failed the legal hurdles under Chinese competition law, which we always recognised was likely to be both an unknown factor and problematic.”
A statement from the Hong Kong Shippers’ Council, which has argued that the P3 would have restricted competition in the sector, said: “In Hong Kong, the fact that over 90% of exports are under free-on-board terms entails that the choice of carrier is in the hands of overseas buyers. Consequently, shipping lines, after they come to terms on sea freight rates with overseas buyers, implemented numerous local charges and surcharges on Hong Kong shippers in order to increase revenue. Many of these are hardly justifiable.
“These numerous charges substantially inflate the logistics costs and erode the competitiveness of Hong Kong [but] Hong Kong shippers have no choice but to pay in order to complete an export.”
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