On Tuesday next week the competition authorities in the United States, the EU, and China will meet in Washington, DC, to discuss and evaluate the P3 Alliance among the three largest carriers in the world, Maersk Line, MSC, and CMA CGM. And that summit will hopefully bring clarification about the extent and consequences of the giant collaboration, says Chris Welsh, Secretary General of the Global Shippers Forum (GSF), which represents thousands of shippers world wide, including companies such as Tesco and Walmart.
"I hope this will be an opportunity for the competition authorities to get a clear understanding of what this agreement actually contains. And to share their own opinions on this, so that we'll get a more comprehensive regulatory approach to the agreement, because right now we're looking at very different regulatory approaches. But we don't yet know how this will go," he says in an interview with ShippingWatch.
An unusual agreement
In 2008 the EU-Commission banned the so-called liner conferences, with the Consortia Block Exemption Regulation, but this regulation still exempts "agreements between two or more ship operation companies supplying services for international liner carriers with sole purpose of commodity transport, primarily through containers," as it says. This refers to consortia such as the P3 Alliance, which is why the Alliance could in principle start operating in the EU today, as long as its share on the various markets do not exceed 30 percent. In which case the exemption would be repealed.
That the parties have not done so yet illustrates the "unusual nature" of the agreement, says Chris Welsh. And the same thing goes for the response from the G6 alliance, which recently expanded its cooperation, a move that - according to analysts SeaIntel - will give the alliance the biggest market share on the routes between Asia and the US West Coast and between Northern Europe and the US East Coast.
"I think it's very clear that the carriers themselves want some kind of official approval and a sense of security in Europe that the agreement won't interfere with the competition. The G6 alliance's reaction is understandable and mere underlines the kind of game changer P3 could be. P3 is just as sensitive to other competitors in the market as it is to the shippers. And the competitors are clearly worried that they won't be able to compete on prices due to the economies of scale the three carriers will be able to achieve through P3."
Shippers on uncertain ground
Uncertainties regarding the actual content of the agreement is spreading like ripples on the water among the organization's members. Last week Chris Welsh spoke to a global shipper who relies heavily on containers, and who has contracts with both Maersk Line, CMA CGM, and MSC, and Chris Welsh explains that this company still does not know how the Alliance, if approved, will affect these contracts.
"They don't know which routes will be affected, which services, and they're about to start renegotiating their contracts now. And of course they'll do this on the basis of what they know now. If you include the fact that the companies have to make decisions relating to production and market distribution of products and they don't know all the details about the Alliance, then it's only natural that they, and many others, are questioning the kind of influence P3 will have."
The question of capacity, in particular, is cause for concern at GSF. Chris Welsh points that his understanding of the agreement indicates that the carriers can arrange and agree upon market shares on the various routes, as well as how much capacity should be in the market. P3 itself has announced that it wants to limit the number of ships in the alliance in order to reduce the overcapacity in the container segment. And what is the problem with that?
"Capacity is the most frequently used method for controlling prices in agreements of this kind," says Chris Welsh.
The key unanswered competition questions
Global Shippers Forum (GSF) has been active throughout the entire process, where concerned stake-holders have been invited to ask questions and submit comments about the extent of the P3 Alliance and its effects to the US competition authority FMC, the Federal Maritime Commission. In particular, GSF has voiced concerns about the text in the agreement (Vessel Sharing Agreement) that the carriers submitted to the FMC. According to Chris Welsh the text does not answer the key questions raised by the Alliance.
And in this light, he is pleased that the FMC recently submitted additional questions to the alliance partners.
"We're concerned about the open nature of this agreement, about whether this agreement will make the parties limit the capacity, the opportunity for the partners to agree on future investments, share information concerning investments, and the carriers' ability to agree on slot prices,2 says Chris Welsh, adding:
"This isn't just a technical agreement about vessel sharing. We're not against that concept, but this agreement goes deeper than that, which means that the name is misleading, "The Network Vessel Sharing Agreement." If one looks deeper into the agreement there are many unanswered questions."
For what does it really mean if the carriers are able to agree on slot prices? How will this influence the shipping companies' ability to price individually, asks the Secretary General, pointing out that the partners have announced that they plan to price individually.
"We'd like to know how they plan on doing that. How are they going to compete against each other?"