P3 Network scrapped as China rejects application

Greg Knowler, June 17, 2014, Journal of Commerce

In a stunning move that shook the container shipping industry today, Maersk Line, CMA CGM and Mediterranean Shipping Co. scrapped their proposed P3 Network after China’s Ministry of Commerce rejected the vessel-sharing agreement.


“The decision does come as a surprise to us, of course, as the partners have worked hard to address all the regulators’ concerns,”  Maersk Group CEO Nils Andersen said.


The Ministry of Commerce gave no reason for the decision, which follows a review under the mainland’s merger control rules.


In a statement following the ruling, Maersk Line said the P3 partners had agreed to stop preparatory work on the P3 Network, which was scheduled to start operations in the fall, “and the P3 Network as initially planned will not come into existence.”


Andersen said the alliance would have enabled Maersk Line to make further reductions in cost and CO2 emissions with a more efficient vessel network. “Nevertheless, I’m quite confident Maersk Line will accomplish those improvements anyway,” he said. “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.”


Vincent Clerc, chief trade and marketing officer for Maersk Line, said the alliance members had worked hard to address China’s questions and concerns. “So of course it is a disappointment. P3 would have provided Maersk Line with a more efficient network and our customers with a better product. We are committed to continuing to be cost competitive and offer reliable services,” he said.


The scrapping of the P3  brings an abrupt halt to what was widely regarded as a game-changing mega-alliance. It would have controlled 42 percent of Asia-Europe capacity, 24 percent of trans-Pacific capacity and 40 to 42 percent on the trans-Atlantic, according to the U.S. Federal Maritime Commission. Initially, the network would have comprised 252 vessels totaling 2.6 million 20-foot-equivalent units on east-west routes.


Maersk, MSC and CMA CGM announced their intention to form the P3 last June, with the overall goal being to make container liner shipping more efficient and improve service quality for the shippers due to more frequent and reliable services.


The P3 Network was intended to be an operational, not a commercial, cooperation.


On March 24, the FMC decided to allow the P3 Network agreement to become effective in the U.S., and on June 3, the European Commission informed the P3 partners that it had decided not to open an antitrust investigation into P3 and had closed its file.


Regulators in both jurisdictions, however, had pledged to keep a close watch on the alliance for any anticompetitive behavior.


The Maersk Line statement said the lack of implementation of the P3 Network will have no material impact on Maersk Group’s expected result for 2014.


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