From SCDigest's On-Target e-Magazine
- July 23, 2014 -
Global Supply Chain News: Despite P3 Setback, Alliances and Consortia for Container Shipping Lines Likely to Continue On
M2 Alliance more Likely to get Past China, while CMA CGM Looks for New Partners
SCDigest Editorial Staff
In June, regulators in China shocked the ocean container shipping industry by blocking the proposed P3 Network, an operating consortia across the three largest container carriers, Maersk Line, Mediterranean Shipping Co., and CMA CGM. (See P3 Alliance is Dead, as China Says No.)
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The Triple E's and other megaships operate at a much lower cost per container than smaller ships - but only if they are highly utilized.
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What Do You Say?
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Saying that P3 would "restrict competition" on the busiest Asia-Europe container routes, the move was a surprise coming after the US and European Union had signed off on the arrangement, and left some wondering if the real issue was China showing its regulatory influence more so than true concerns about market competition.
When announced, P3 was seen by most as having a deep impact in industry dynamics, and certainly many shippers were leery of the move, even though under the deal each carrier would have maintained its own sales, marketing and pricing, but sharing vessel space and routes under a separating operating company.
And indeed, the competing G6 network announced intentions to bulk up its sailings in response to P3, while a new consortia was formed among a group of Asian carriers (Cosco, K Line, Yang Ming, Hanjin, and later Evergreen), called CKYHE.
Would those alliances also have regulatory trouble? Would P3's demise be an inflection point that would move the industry away from such alliances instead?
No, say the experts at Drewry Consulting, in a recent blog post on the subject.
"Ocean carriers are clearly not yet done with mega-alliance expansion following China's rejection of P3," Drewry says.
First, Maersk recently announced plans for a new 2M vessel sharing agreement with MSC, leaving former partner CMA CGM out in the cold. The new partners hope the lower market share of two versus three carriers, and the somewhat less integrated operating arrangement, would lead the Chinese to say Yes to this alliance.
Evergreen and the CKYH alliance are still talking to the US' Federal Maritime Commission (FMC) about extending the scope of their operating agreement between Asia and Europe to include the US, according to Drewry, while the analysts there speculate the currently dateless CMA CGM will form an alliance with China Shipping Container Lines and United Arab Shipping Company.
"New partnerships are required as no one has yet come up with a better alternative to reduce costs and improve service frequency at the same time, short of take-overs and mergers," Drewry notes. "Some may claim that mega-alliances are little better than price-regulating cartels, but poor to non-existent ocean carrier profitability since their introduction argues otherwise."
Another factor of course is the rise of the megaships, such as Maersk planned fleet of 20 mammoth Triple E vessels capable of holding some 18,000 TEU. The Triple E's and other megaships operate at a much lower cost per container than smaller ships - but only if they are highly utilized. The alliances and consortia may provide a way to bolster that utilization, leading in the end to much fewer smaller and mid-sized vessels.
(Global Supply Chain Article Continued Below)
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