Maersk, MSC and CMA CGM to join forces bears many promises for the container industry

Maersk’s, MSC’s and CMA CGM’s intention to provide jointly run schedules in the Asia/Europe, transpacific and transatlantic tradelanes promises much for the container industry. The P3 east-west service network initiative to be implemented by Maersk, CMA CGM and MSC in 2Q 2014 must be considered a positive development for the liner industry since it will help reduce carrier costs and stabilize the market. There are still more than 15 competing carriers on most trade routes, so the combination of Maersk/MSC/CMA CGM in an operating alliance in the transpacific, Asia/Europe and transatlantic tradelanes should not damage competition.
But, it will contribute to the trend towards lack of service differentiation in container shipping, which is something that will continue to worry shippers. At this early stage, the Asian Shippers’ Meeting (ASM) and European Shippers Council (ESC) have merely expressed deep concern over the Maersk/MSC/CMA CGM alliance, stating that it should in no way jeopardize or impair the free choice of shippers, and fair competition based on price, service level and routing.
The P3 network will be based on existing capacities of each member, and initially operate 255 vessels providing a capacity of 2.6 million teu in 29 loops. Maersk Line will contribute 42% of the capacity, followed by MSC with 34%, and CMA CGM with 24%. Vessels provided by the lines will continue to be owned and chartered.
According to Drewry’s records, the three carriers currently deploy 305 vessels offering a total capacity of 2.6 million teu in 42 loops on the three routes, so some serious culling will have to take place somewhere. The analysis excludes the Mediterranean/East Coast of North America tradelane where Maersk is currently phasing out its direct service, although it will eventually become part of the P3 network.
Should the new initiative be fully approved by the regulatory authorities, it will mean 13 of the top 20 lines being in a structured alliance on the main east – west trades, leaving UASC, Evergreen, CSCL and Zim out on a limb.
According to Vincent Clerk, chief Trade and Marketing Officer in Maersk Line, all regulatory bodies, including the European Commission and FMC, have been approached, and are basically in agreement with the proposal providing there is no flow of information between the members’ commercial departments and the independent operating centre that will be established to manage vessel schedules, allocations and utilisation. It is not yet a done deal, however. The operational  firewall is unnecessary in other alliances and consortia as their market shares are below the EU’s 30% ceiling.
Under EU antitrust rules, consortia are exempted up to this cargo market share level. Above this level, agreements can nevertheless be compatible if the efficiencies brought about by the cooperation outweigh the harm to competition (Article 101(3) of the Treaty on the Functioning of the European Union).  In principle, it is the responsibility of each company to assess whether an agreement complies with EU antitrust rules, although the European Commission may of course decide to examine the situation.
The following table reveals that Maersk, MSC and CMA CGM had a combined vessel capacity market share of 37.6% in April across the Asia/Europe, transpacific and transatlantic routes, so could be interpreted to be in a dominant position. The position is most sensitive between Asia and the Mediterranean (55%), followed by Asia/Northern Europe (46%), transatlantic (35%) and transpacific (29%).

The independent operating centre set up to manage the P3 network will be responsible for ensuring that each line’s schedule integrity is maintained at a high level, according to the carriers. This will be necessary, as shippers supporting Maersk because of its good track record could find their cargo being shipped on the other partners’ ships. Given the large tonnage at its disposal, it should be easier to adjust capacity up or down as demand changes, instead of through large lumpy additions or deletions of whole loops, thereby providing a more regular service.
Daily Maersk is to be maintained, and even improved, as there will be eight loops instead of five. Presumably both MSC and CMA CGM will want to offer something similar independently within this network. Shippers will, no doubt, be looking for other similar service initiatives, rather than just operational benefits evolving out of a common schedule network.
The port and terminal network that will be used within the P3 network has yet to be made public and will be interesting due to each member’s separate terminal interests and port preferences. Where the three decide to call at the same terminals, it should provide a tremendous boost for selected intermodal transport service providers due to the economies of scale available. Like ships, trains and barges need cargo volume to work successfully, which a fragmented service does not provide as well.
Our View
The P3 service network will be positive for the container industry providing Maersk/MSC/CMA CGM’s dominant position is not abused, or used as an excuse to postpone service innovation.
Source: Drewry Maritime Research