Picking up the P3 pieces

In the end, does the “why” really matter? After 12 months of planning and countless millions of dollars, isn’t it enough that China said no to the largest vessel-sharing alliance ever proposed?

Well, yes, the reasons behind the failed partnership of Maersk Line, CMA CGM and Mediterranean Shipping Co. do indeed matter. Unfortunately, we may never know the true reasons behind China’s rejection after the three carriers tried in various ways to meet the country’s conditions, according to a report by the global law firm of Skadden, Arps, Slate, Meagher & Flom.

On its face, of course, the carriers’ share of the Asia-Europe trade — 42 percent, according to the U.S. Federal Maritime Commission, and 47 percent, according to China’s Ministry of Commerce — would be enough to void the deal, considering the most common threshold for dominant market control is 30 percent.

But there’s been enough chatter — some linked directly to the P3 carriers’ themselves — that the lack of a Chinese carrier in the alliance was the real deal-killer. Some have gone as far to say that such a demand was made.

Or, if you believe others, it was the centralized command center to be run by former Maersk executive Lars Mikael Jensen that ran afoul of Chinese regulators (though one would think, if true, that could have been rectified by the carriers. That it wasn’t — and that the P3 carriers quickly squashed the P3 after China’s decision — only raises more questions about the carriers’ true commitment to the alliance.).

And, if you believe Richard Gluck, an attorney with Garvey Schubert Barer in Washington who chairs its Transportation and Logistics and China Task Force practice groups, it was more about the impact on rates out of China and the broader economic impact.

The reasoning behind the latter two possibilities, however, belies a simple fact: Regulatory efforts don’t die with approval of a partnership. Regulatory agencies in Europe, the U.S., Japan and numerous other countries have been anything but passive toward carriers of all sorts accused of breaching antitrust law.

In allowing the P3, in fact, the European Commission warned the carriers that it would respond to any complaints of anti-competitive behavior. Sure, you say, but the three P3 carriers are European and thus were in line for beneficial treatment by EU antitrust authorities. Valid point, but misguided. The European Commission is eight months into an investigation of Asia-Europe carriers — including Maersk and CMA CGM — over alleged coordination of rate increases and has been an aggressive antitrust officer for the better part of two decades.

Is China as harsh on its own? Tough to say, but an argument can be made that it isn’t. The CKYHE Alliance among China Ocean Shipping Co., Japan’s “K” Line, Taiwan’s Yang Ming and Evergreen and South Korea’s Hanjin Shipping, after all, controls 32 percent of the trans-Pacific trade — above that 30 percent threshold that commonly indicates market dominance, according to research analyst Alphaliner. The P3 would have controlled 22 percent of that market.

So why does the true reason for China’s decision to stonewall the P3 matter? Because as with any strategic move, lack of visibility leads to guesswork. Ocean carriers, in particular, can’t afford guesswork after collectively losing billions of dollars in four of the last five years. For some, their decisions could be the difference between surviving or not. Maersk, CMA CGM and MSC have such financial heft that they can withstand the rejection of a plan a year in the making and worth millions of dollars. It’s a luxury not everyone can afford.  

Contact Chris Brooks at cbrooks@joc.com and follow him on Twitter: @cbrooks_joc.

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