WASHINGTON — The U.S. Federal Maritime Commissioner who cast the lone vote against the P3 network last week called it an “alliance in name only” in which the controlling carrier, Maersk Line, can virtually “paint the other parties’ ships light blue.”
Calling the P3 anticompetitive, Commissioner Richard Lidinsky pointed to how another large alliance, the G6, has a rotating chairmanship, while the P3 in contrast is headed by Maersk executive Lars Mikael Jensen. Many in the industry are surprised that fellow P3 carriers Mediterranean Shipping Co. and CMA CGM, the No. 2 and 3 carriers in the world respectively, agreed to cede such control to Maersk, Lidinsky told the JOC.
“I am not anti-alliance, but if there ever was a poster child for anticompetitive agreements, this is it,” he said.
His comments echo the concerns of some shippers and transportation providers that told the FMC they were worried the alliance would foster monopolistic practices, reduce service via increased use of transshipment hubs and push out smaller carriers. The P3 carriers countered that the alliance will be strictly operational by nature and improve reliability by reducing the number of cancelled sailings. Through the P3, the carriers will consolidate their services around fewer but larger ships, resulting in lower per-container costs and giving the trio a cost advantage over carriers and alliances that operate smaller vessels on average.
Unlike most VSAs, which are “usually loose” and involve slot sharing of only a few hundred containers, the P3 is “very structured, very robotic,” and massive, Lidinsky said in an interview with the JOC. The alliance would represent roughly 42 percent of Asia-Europe capacity, 24 percent of trans-Pacific capacity and 40 to 42 percent on the trans-Atlantic, according to the FMC.
He likened the P3 to allowing Ford, GM and Toyota to team-up. The size of the proposed P3 and how it would be operated, along with what he said was his understanding that Maersk would be the major decision-maker, led Lidinsky to conclude that the alliance would likely produce an unreasonable increase in transportation costs and an unreasonable decrease in service. Both measures, set forth by the Shipping Act of 1984, are how commissioners determine whether to allow a VSA to proceed or to seek an injunction in federal court to block it.
After approving the alliance on March 20, the commission directed FMC staff to create new reporting requirements for the P3 carriers. Lidinsky said monitoring requirements for VSAs were more rigorous during his tenure as FMC chairman, which ran from September 2009 to March 2013. But he declined to elaborate on how they were more rigorous, saying some of the procedures are confidential. Lidinsky in 2010 proposed tighter monitoring procedures for how the agency reviews VSAs, but the idea never gained traction.
“There was no support from the carriers,” he said.
While working at the Port of Baltimore in the early 1980s, Lidinsky testified in support of changing the FMC’s review of VSAs to 45 days from as many as two years. But, he said, the effort to speed up the review of VSAs through the Shipping Act of 1984 has gone too far the other way. Lidinsky points to how the FMC hasn’t sought an injunction against a VSA since the agency gained authority to do so as part of the act.
Lidnisky will soon get another opportunity to attempt to change how the FMC reviews internal agreements, as the agency is reviewing its rules. Lidinsky said he will push for getting information relating to VSAs faster so that the agency has more time to review the agreements.
He said he didn’t get the needed P3 information until the 30th day of the second 45-day review period. The FMC in December asked the P3 carriers questions, stopping the first 45-day review and starting another one once answers were received. Lidinsky also would like the commissions’ questions to carriers seeking VSAs to be made public.
But before the FMC will look at how it handles internal agreements, it needs to decide whether it will change how it regulates ocean transportation intermediaries. The proposed OTI overhaul, which would increase licensing requirements and financial responsibility levels, has been widely criticized in the industry for needlessly adding costs. FMC Chairman Mario Cordero has defended the proposed overhaul, saying the rules haven’t been substantially reviewed since 1999 and many forwarders and non-vessel operating common carriers don’t meet reporting requirements.
Lidinsky, who expects the commission to act on the proposed OTI overhaul later this spring, said he has taken note of industry concerns and said some alterations should be made. Following the review of OTI regulation and internal agreement procedures, the agency will turn its attention to service contracts. He would like to shift the onus of proving the VSA adheres to the Shipping Act from the commission to the carriers seeking the agreement. Such a change, however, would require congressional approval.
“I realize not everything can be fixed internally, but the FMC needs to present a better balance by showing the shipper and port side, “ Lidinsky said. “It’s not all about carriers maximizing ship capacity and filling slots.”