The “big three” ocean shipping carriers, Maersk Line, MSC Mediterranean Shipping Company and CMA CGM, have announced their establishment of an operational alliance on the three busiest trade lanes: Asia-Europe, Trans-Pacific and Trans-Atlantic. The provisional agreement, called the P3 Network, will pool together vessels equivalent to 15 percent of global capacity on the respective routes.
The move signals at how badly the ocean shipping carriers are struggling with overcapacity and unstable rates. The Financial Times cites that “prices on the key Asia-Europe route have fallen by as much as 70 percent in the past 12 months and in most markets ships are operating below cost.” The agreement is contingent on the ratification of relevant competition and regulatory authorities; however, Maersk Line executives indicate that the authorities have been approached and are in essence in agreement as long as there is no information sharing of any kind between the carriers. If approved, the alliance will roll out quarter two of 2014.
What does this mean for ocean shippers?
The establishment of the P3 Network Agreement stabilizes the ocean shipping market. The fierce instability of the ocean freight rates on a weekly, sometimes daily, basis has made it increasingly difficult to manage a supply chain amongst the volatility. Stability will allow logistics managers to better forecast their supply chain.
Although there are more than 15 competing carriers on the competing trade routes, the alliance of the three largest ocean shipping carriers will leverage Maersk, MSC and CMA in a very dominant carrier position. The dominant position and the sharing of resources will not just mean the reduction of carrier costs, but could have a negative impact on rates for ocean shippers. While in theory there would be no flow of information between the member’s commercial departments and the P3-established independent operating center (which will be used to manage vessel schedules and allocations), the Asian Shippers’ Meeting (ASM) has already voiced concern.
Shippers will also be limited when choosing among a specific carrier within the P3 alliance. Both ASM and the European Shippers Council (ESC) have stated that the alliance should “in no way jeopardize or impair the free choice of shippers, and fair competition based on price, service level and routing.” No such differentiation could possibly stunt the carrier’s service innovation in the industry.
According to the alliance the network “will provide customers with more stable, frequent and flexible services.” The alliance also noted that, “each of the lines will offer more weekly sailings in their combined network than they do individually. As an example, the P3 Network plans to offer 8 weekly sailings between Asia and Northern Europe. In addition the P3 Network will offer more direct ports of call.” The alliance also promotes, as a results of their extensive network, “a reduction in disruptions for customers from cancelled sailings.”
Capacity, by carrier:
The P3 Network will be based on existing capacities of each member, initially operate a capacity of 2.6 million TEU (255 vessels)
Maersk Line will contribute with approximately 42% of the capacity (including the new Triple-E ships), of about 1.1 million TEU. Maersk Line will continue to offer the Daily Maersk product to those customers requesting it.
MSC will contribute with approximately 34% of the capacity, of about 0.9 million TEU of capacity.
CMA CGM will contribute with approximately 24% of the capacity equaling 0.6 million TEU.
Vessels contributed to the P3 Network will continue to be owned and/or chartered by the lines.