Ports in Asia consider impact of P3 rejection

Greg Knowler, June 18, 2014, Journal of Commerce

Asian ports are still digesting the ramifications of China’s unexpected decision yesterday to reject the P3 Network application, putting the kibosh on a vessel-sharing agreement between Maersk Line, MSC and CMA CGM that was set to dominate the container shipping industry.


Most terminal executives declined to comment while they searched for more details, but all expressed surprise that approval from the Ministry of Commerce (Mofcom) had been denied. The alliance was widely expected to be approved and the P3 carriers were preparing to launch in autumn.


Modern Terminals chief operating officer Peter Levesque said the operator is still assessing the ramifications of the announcement. “Think the news was a surprise to most,” he said.


But it was a welcome surprise to staff at some terminal operators who learned of the rejection from the JOC. “That is great news,” said a member of the management staff at one terminal operator. “The lines will have less bargaining power and will not be able to force our rates down.”


Staff at another terminal also welcomed the decision that forced the carriers to scrap the alliance, saying some P3 ports of call in Asia stood to lose services when the carriers consolidated their routes.


Now that the alliance is history, potential volume losses will have to be dealt with by ports in Asia, said an executive at a large port operator who declined to be named. He said terminal operators will need to understand how the three lines plan to deploy their vessels now that the P3 has been abandoned, and with a pooled fleet of 255 vessels, the rerouting may require a fair amount of creativity.


“Depending on their routing of services, some terminals may gain more volume while others may lose some. It may take some months before the situation is clear,” he said.


But Vivian Tao, China transportation analyst for Citi Research, said the rejection of the P3 alliance would have limited impact on Asian ports. She said discounts were typically offered by terminals to liners as incentives to bring in more volume, but that would not apply in this case.


“Port operators we talked to all state that terminals in Asia normally sign contracts with individual lines, rather than with alliances. Past experience shows there hasn’t been much change in bargaining power as a result of the formation of alliances,” she said.


China’s Mofcom said in a statement that it turned down the application after an antitrust assessment revealed the alliance would have a “far-reaching” impact on the shipping industry. Had the alliance gone ahead, the ministry said, it would have caused “a high level of concern in all sectors” of the container shipping industry.


It concluded that the alliance would have increased the members’ “combined capacity in container shipping on Asia-Europe” routes and would have given them “a substantial increase in market concentration.”


As container terminals and carriers pondered the wider implications of a shipping industry without the mega alliance, Asia transport analyst Charles de Trenck could not help marveling at the “cruel irony” of China’s decision.


“In some contexts I could agree or understand. In the context of the work done for approval by the carriers, and in context of the dismal state of container shipping profitability, itself driven further down by oversupply coming from Asia, especially China, the irony is just too cruel,” he said.


“The country that is responsible for driving down ship prices and subsidizing its shipping carriers the most among all countries is actually the deal breaker on behalf of companies it seeks to bail out even further, despite all the evidence of their continued failings. What a statement,” de Trenck said.


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