P3: Why Now, And What’s Next?

As part of my daily routine, I have coffee and toast at my Arizona home at 6 a.m., in a tranquil setting with a nice view of the fourth fairway that, because of my work, I rarely get to trod on. I also check my two BlackBerrys, reading e-mails arriving from Asia and Europe while I slept and from our East Coast offices as they open for business, all of which give me a hint of what the workday will be like.

But a message I received on the morning of June 18 stuck with me longer than most. It came from Maersk Line’s home office in Copenhagen to announce the P3 “alliance” with Mediterranean Shipping Co. and CMA CGM. It took just a couple of minutes to read, but I found myself still thinking about it 45 minutes later on my drive to work.

Most of the new releases I see are pretty routine. This one wasn’t, for obvious reasons: the world’s three largest container carriers collaborating in a significant operating alliance in the three major east-west trades. Why? Why now?

As I write this, several days have passed, several calls with friends have been made, and several e-mails have been exchanged concerning this move involving fierce competitors. One of those companies has a heritage of more than 100 years, and the other two are relative newcomers. They’ve all risen to their significant size by virtue of a quadrupling of global trade between 1986 and 2006, taking risks with strategies that left their 20-plus significant competitors in their distant wake. Now this. Why? And why now?

My conclusion, as usual, is that that there isn’t a single reason, but multiple. To a degree, it’s a matter of necessity. All three carriers are in the midst of a not-too-good stretch for the industry. Global supply-demand ratios are highly unfavorable, putting tremendous pressure on rates, especially in the Asia-Europe market, and straining bottom lines.

Forming the P3 is certainly one way to manage capacity, considering the three carriers operate the world’s three largest fleets. Doing so will put supply-demand ratios more in sync, rates will rise and so will profitability.

It also will help the three carriers control costs. Instead of three giants trying to maximize utilization levels while fighting each other, they’ll set their combined fleet size to fit the market and return chartered vessels to their owners or park unneeded capacity. Either way, they’ll save significant operating costs, helping their bottom lines.

All three carriers have enough vessels and capacity to lay up or return chartered ships, and when the markets rise, they can easily supplant capacity when and where they need to meet growing trade demand. And they’ll do it while improving their combined bottom lines with little real chance of losing their hard-earned places as the Nos. 1, 2 and 3 carriers in the world.

These seemingly simple steps make great sense in all but the competitive world. But this isn’t about the competitive world. This is the business world, where the goal is
to make the most money and survive. That’s what this is about, and that answers the question, “Why  now?”

One other thing crosses my mind: I’ve seen this before. For several years in the 1990s, a “war room” existed in Charlotte, N.C., with two competing companies — Maersk Line and Sea-Land Service — working together in their operations to improve their bottom lines. As with the P3 arrangement, sales and marketing, administration and other back-office operations stayed within the confines of two separate companies. Many readers will recall the eventual outcome of that joint endeavor in the late 1990s.

Is there an element of that experience that crosses my mind? Absolutely. For those who don’t remember, you haven’t been paying close enough attention to what’s been said, written and announced over the past few years.  

Gary Ferrulli, a 40-year shipping industry veteran, is director of export carrier relations for non-vessel-operating common carrier Ocean World Lines, a subsidiary of Pacer International. Contact him at mrgt4811@mindspring.com. The views expressed here are his own and do not necessarily reflect those of OWL.

 

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