Wednesday, June 18, 2014

The Good Ship P3 Sinks - Container Shipping Line Freight Accord Descends Into the Depths

Chinese Authority Torpedo Destroys Planned European Box Alliance
Shipping News Feature

ASIA – EUROPE – US – So, the good ship P3, the shiny new container vessel built in Europe and designed to give a new look to East West trades by sharing freight between the world’s three largest box carriers, lies listing on a metaphorical Chinese beach, her final destination apparently the scrapyard. Having successfully sailed by the icebergs of the US Federal Maritime Commission (FMC) and over the dangerous shoals in European Commission waters, perhaps with hindsight we should not be too surprised at the torpedo launched into her by the Oriental authorities.

P3 was, to say the least, innovative. In the spirit of the original container conference agreements it promised to see fair competition amongst the big three, Maersk, Mediterranean Shipping (MSC) and CMA CGM, with the added element of centralised administrative control. Apparently the tripartite agreement breached Chinese Ministry of Commerce (MOFCOM) merger control rules, cynics will say it threatened the country’s own state controlled shipping outfits.

The participants in the agreement have each issued statements confirming their respect for what must be a hammer blow to all, having got so far already with regard to international approval. The three container lines have agreed to stop the preparatory work on the P3 Network and the P3 Network as initially planned will not come into existence. It is a year to the day since the partners published their intention to cooperate, and each has expressed both surprise and disappointment at the decision, whilst promising to endeavour to keep offering top quality service. Diego Aponte, Vice President of MSC commented:

“We are disappointed by the decision of the Chinese Ministry of Commerce (MOFCOM) but will continue our efforts to operate more efficiently and provide our clients with a comprehensive and excellent service. 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.”

The partners agree that P3 was intended to be an operational, not a commercial, cooperation and had intended to begin services in the autumn of 2014 having successfully impressed the US authorities in March and the EU just this month. Maersk Group CEO Nils S. Andersen, said:

“The decision does come as a surprise to us, of course, as the partners have worked hard to address all the regulators’ concerns. The P3 alliance would have enabled Maersk Line to make further reductions in cost and CO2 emissions and not least improve its services to its customers with a more efficient vessel network. Nevertheless, I’m quite confident Maersk Line will accomplish those improvements anyway. It has delivered on those improvements over the last five quarters in the absence of P3 and I’m confident it will continue to do so.”

Not everybody it seems was displeased by the decision of the Chinese and the Global Shippers’ Forum (GSF) lobbied hard for changes to ease its concerns over competition, saying the Alliance would ‘fundamentally change the structure of container shipping markets’. The GSF felt that the economies of scale gained by combining administration meant a hitherto unprecedented ‘commonality of costs’ but hinted at darker dealings such as the potential risk of collusion on rates and capacity due to the wide-ranging scope of co-operation specified within the agreement. Reflecting on the support received for its views by China, GSF Secretary General Chris Welsh remarked:

“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 the 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.”

Despite these claims of second sight once again cynics will say that nobody seems to have predicted P3 foundering as she approached safe harbour, sea trials over and ready to launch her maiden voyage. They might also add that the G6 Alliance does not seem to have incurred the slightest interest from the Chinese authorities, perhaps its make-up of one sixth European as against five sixth’s Asian container shipping lines having more than a little to do with it? In an oblique reference, presumably to G6, a MOFCOM statement said that 'other operators are forced to enhance their dealings with each other in order to remain competitive in the market and establish some sort of foothold in the industry'. It remains to be seen if this means the authorities will now comment or act directly on that alternative grouping.