This is the second in a series of articles looking at the P3 Network’s chances of approval in the U.S., Europe and China.
The world’s three largest container lines will likely have a tougher time convincing European Union regulators than their Chinese and U.S. counterparts that their proposed vessel-sharing alliance won’t harm competition.
Part of the increased scrutiny will be because the P3 Network is a largely Eurocentric set-up. The alliance members — Maersk Line, CMA CGM and Mediterranean Shipping Co. — are Danish, French and Swiss-Italian owned, and two of its three trades connect Europe with Asia and North America. There is a significant P3 presence on the third route, the trans-Pacific trade.
European competition regulators also have a much more proactive involvement in container shipping than their peers in Washington and Beijing, who have gone public on the P3 Network while Brussels has remained mum. The Federal Maritime Commission says it will “keep an open mind” on the plan aimed at reducing the carriers’ operating costs by consolidating their services around fewer but larger ships.
Although not part of the Ministry of Commerce, which is reviewing the plan, Zhang Ye, head of the Shanghai Shipping Exchange, believes the P3 would help to stabilize freight rates. But there would be challenges just the same if regulators approve the plan, he said at The Journal of Commerce’s 7th Annual TPM Asia Conference in October.
“When it is getting strong, it might not listen to you, while at the beginning it would report every shipping freight rate,” Zhang said.
The European Commission, the EU’s executive, outlawed liner conferences in 2008, while they remain legal in other maritime jurisdictions, and has levied hundreds of millions of dollars of antitrust fines on carriers in the past.
Even as they received details of the P3 Network earlier in the year, EU regulators were poring over documents they seized in dawn raids on some of the largest ocean carriers, including Maersk, in May 2011, as part of an investigation into suspected cartel activities on major trade routes, including Asia-Europe.
Conversely, China doesn’t have automatic legal grounds to reject the alliance because it already has allowed other vessel-sharing alliances, such as the G6 and CKYH, sources at the World Shipping (China) Summit in Ningbo told the JOC last week.
"We are still waiting for the decision. We will watch it very carefully," Cosco Chairman Ma Zehua told the JOC. "It could have a good impact or a bad impact"
The P3 carriers appear pretty laid back about the ongoing regulatory inquiries as they work toward launching their network in the second quarter of 2014. “There’s nothing new to report on the P3 alliance, “Nils Andersen, chief executive of A.P. Moller-Maersk, said this week as he unveiled third quarter results, including a $554 million profit for its Maersk Line unit.
The P3 alliance “does not affect the market in any negative way,” Andersen claimed, portraying it as a straightforward vessel-sharing agreement with the added benefit of reducing the global carbon footprint.
For now, the ball is in the court of the P3 carriers because of the complex EU competition rulebook for container shipping. After it outlawed conferences, the commission granted shipping consortia trading with Europe a blanket exemption from the EU’s antitrust rules if their market share is 30 percent or lower. But crucially, they can go (much) higher if the consortia members carry out a self-assessment to ensure there is no abuse of a dominant position.
The P3 carriers are sure to have presented a strong case to the EU regulators that all they are planning is a ramped up vessel-sharing agreement, coordinated by an arm’s length operating center in London, that’s aimed at cutting costs, improving efficiency and sharing the benefits with their tens of thousands of customers.
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A higher threshold shouldn't prove too much of a problem for the P3 carriers. Under EU law, a 45 percent market share raises the presumption of dominant market position — above the P3’s estimated 42 percent slice of the Asia-Europe route, its biggest trade. Moreover, several jurisdictions, including the U.S. and Singapore, have antitrust block exemption thresholds for consortia up to 50 percent.
Crucially, shippers don’t object to vessel-sharing agreements, even the 252-ship, 2.6 million-TEU P3 behemoth, as long as there isn’t the slightest whiff of price collusion and clear evidence that customers are benefiting. The Global Shippers Forum has adopted a fairly relaxed stance toward the P3 Network, simply seeking a thorough regulatory examination in the EU and the U.S. to address and allay shippers’ concerns. That position came despite the forum being headed by Chris Welsh, a former scourge of the carriers and leading foe of liner conferences when he headed the European Shippers' Council in Brussels.
The EU’s decision could go either way. It has waved through the three largest airline alliances that dominate the global aviation market – oneWorld, Star and SkyTeam – after squeezing relatively modest concessions. But it adopted a narrow, ideologically driven view of market share in its investigation of UPS’s $5.8 billion bid for TNT Express, its smaller Dutch rival, that forced the U.S.-based parcel giant to walk away from the deal.
But Brussels has always struggled to fully grasp the complexities of the global container shipping business and likely will wave through the alliance with a few caveats.
Contact Bruce Barnard at firstname.lastname@example.org.